Many drivers choose to lease a car rather than purchase it outright in order to lessen the monthly cost or afford a more luxurious option. And after leasing a vehicle, many drivers then choose to buy it. This option is best for drivers who have fallen in love with their leased vehicle and no longer want to pay a monthly fee. But before taking this route, weighing the total cost is important.
The current vehicle market also influences whether or not this will save you money. Last year, for example, low vehicle inventory meant holding onto leased cars made the most sense. Now in 2023, fewer drivers are reaching for a leased vehicle deal.
Key takeaways
When should you lease before buying?
Leasing to buy is not the right choice if you are the type of driver who always wants the latest model. But if you want to take advantage of lower initial payments before committing to a car loan, leasing with the intent to purchase could save you money.
To decide which option is best, add the total cost of leasing a car, including any upfront fees, to the car’s projected residual value at the end of the lease. Then compare that number to the car’s sale price, plus all fees and money factor over the life of the car loan, and see which number is lower.
Bankrate tip
To simplify the math, use a lease vs. buy calculator to see net cost differences.
In some cases, leasing and then buying ends up being more expensive than buying outright. This is especially true if you exceed the dealer’s mileage limits or the residual value at the end of the lease is much higher than anticipated.
But if you can get a good interest rate deal on your lease and the residual value is lower than expected, it could be a good trade-off to not be locked into a car until you know it fits your lifestyle.
Key considerations before leasing to buy
Ahead of choosing the make and model of your potential lease, weigh your typical driving habits.
How long do you want to drive the car?
Decide how long you intend to hold onto the vehicle. If you hope to buy or lease the newest model in less than two years, it doesn’t make sense to lease and then purchase the vehicle. There is no way to know if your car’s residual value will increase or decrease over the lease term. But if it decreases and you decide to keep the car for a short period, you’ll likely owe more than the car is worth, and the money will have to come out of pocket to swap it out.
How many miles do you typically drive a year?
If you expect to go over your allotted mileage for your lease — typically 10,000, 12,000 or 15,000 miles — then purchasing your vehicle after the lease might save you from the extra fees and penalties for going over your mileage. But be sure that those fees do outweigh the price you’ll pay to purchase the vehicle. If they don’t, consider just buying the vehicle outright rather than going through the lease process.
Will you truly save money?
Compare a new monthly vehicle payment to a lease payment. Also, factor in upfront leasing costs, including the security deposit, acquisition fee and documentation fees alongside the purchase price. If you would pay more while leasing to buy, taking into account fees, it might be smarter to just buy the vehicle outright rather than leasing it first.
Considerations before buying your current leased car
Be wary of jumping the gun if you have fallen in love with your leased set of wheels. First, consider the expected cost and the vehicle’s condition.
Did you weigh financing options?
It is always smart to get at least three different lender quotes for a car purchase or a lease before signing off. The more offers you have in front of you, the better chance you have of receiving a good deal. It can also help you determine whether leasing a different vehicle or buying the car you’ve been driving will be more affordable over time.
Is the car in good condition?
Consider getting the vehicle checked before deciding to go through with a buyout. Depending on how long you have had the lease, you may even fall under the factory warranty and get necessary repairs at a low cost. You shouldn’t purchase the vehicle if the condition has greatly depreciated under your care — but be prepared to cover excessive wear and tear with fees charged by the dealer.
How buyer-friendly is the current car market?
Unlike 2022, this year isn’t as advantageous for drivers looking to buy out their leased cars. Although used vehicle prices have stabilized and are expected to fall soon, they are not in the same spot as the year past.
“People were buying their leased vehicles in 2022 because many were ‘in the money,’ and the pre-arranged end-of-lease purchase price was less than what was being realized at auction,” As explains Charlie Chesbrough, Cox Automotive senior economist and senior director of industry insights.
This meant that drivers could save money because the end-of-lease purchase price — which is decided when you first lease the car — was cheaper than what the cars would command auction, which meant higher vehicle equity.
“Currently, the values at auction are not as high as they were last year,” explains Chesbrough. So there are far fewer leased vehicles that carry high vehicle equity, though he notes, “there are still some out there.”
His advice is to consider two things: the equity remaining in the vehicle and whether or not you would prefer another vehicle over your leased one. Outside of this, he mentions that “some new vehicles [are] still experiencing tight inventory availability.” That, he notes, coupled with limited used car availability, does make for a perfect scenario to buy out a current lease.
Price negotiation tips
If you have decided to buy your vehicle at the end of the lease, you can try to negotiate the deal. Negotiation doesn’t always work, but preparedness is the key to feeling confident when trying to get the lowest price possible.
Returning the leased vehicle instead of buying it does mean that the lenders must find another driver interested in the vehicle — so lean into the fact that the lender wants to avoid the extra time and money that it takes to handle the resale of the vehicle.
Use Kelley Blue Book or Edmunds to find out what your car is worth and compare it to the dealer’s offer. If the value you find for a trade-in is higher than that buyout cost, then you can assume you are getting a good deal.
Keep in mind that if you don’t buy the car, you could end up paying the disposition fee along with surcharges at the end of the lease if the car has too much mileage or excessive damage. You could end up with a bill that you didn’t foresee when you initially made your choice to lease.
The bottom line
Before deciding to lease and then buy your next car, weigh the costs against the ease of the buyout process. Only go ahead if you are getting a great deal on both the lease and the payoff amount. If it would be cheaper to buy your car upfront, or if you think you’ll want the car for a long time, skip the lease and buy your car directly instead.
