Lease Payoff vs Buyout – A Friendly Comparison

Leasing a car is a good option for various reasons, like getting to drive a new car without committing to a long-term loan, having a low maintenance cost, making a small monthly payment, etc. Following this, like many other people, you may also become used to the leased vehicle and wonder why not keep it. In this case, you have two options: one is a lease payoff, and the other is a lease buyout.

What are those? How do these terms work when you are very interested in keeping the leased vehicle? To facilitate your understanding of these two terms, here we perform an effective analysis of lease payoff vs buyout. Not only do we provide the comparison, but we also provide some crucial tips to assist in the decision-making process.

Why You Should Look for Lease Payoff or Buyout Options?

Below are the most likely reasons.

  1. You are now used to the leased vehicle and value your emotional bond with it. Following this, you do not want to return it to the dealership.
  2. After making a market analysis, you have realized that the car’s price is now much higher, and this trend will continue. And you believe that you can get a better deal, making a handsome amount of money.
  3. You need a car and are willing to take on the cost of owning one. A lease payoff or buyout can help you avoid the hassle of leasing another car.
  4. There is an allotted mileage for every leased car, and upon exceeding it, every car leasing company charges an amount (20–50 cents per mile). If the respective cost is very high, you may want to avoid paying it by going for a lease payoff or buyout.
  5. You are habituated to the leased car and want to do some modifications and upgrades. But the lessee won’t allow you to do so. In this case, a lease buyout or payoff is the best option.
  6. You want the flexibility of owning a car and not being tied down to a lease agreement.
Lease Payoff vs Buyout
Lease Payoff vs Buyout

Lease Payoff

This process of owning the leased vehicle is applicable when you decide to purchase the leased car before the end of the contract period. A lease payoff is also known as an early lease buyout. In this case, you are entitled to pay the amount equivalent to the remaining installments plus the car’s projected value after the end of the contract. Please bear in mind that there are fees associated in terms of document transfer, lawyer charges, etc. Let’s check out the associated advantages and disadvantages of the lease payoff.

  • You are getting car ownership.
  • No further monthly installment payment.
  • You are not entitled to pay for any wear and tear or any sort of penalty.
  • You are going to drive a car with familiar features and technological inclusions.
  • The car’s value might not receive appreciation as per expectations.
  • Your insurance as a car owner may get increased.
  • As the owner of the car, you become responsible for all maintenance and repair costs.

When to Decide on Lease Payoff?

Under the below-listed circumstances, you should consider going for a lease payoff option.

  • You love the car and want to keep it long-term.
  • You have exceeded your mileage limit.
  • You have made some customizations to the vehicle that are not allowed as per the agreement.
  • When you see there are financial gains as the car’s residual value is lower than the current market value.
  • You do not want to pay for the damages that occurred due to poor maintenance.

Must-consider Factors

  • Critically examine for a chance of getting lease payoff insurance (also known as gap insurance). If the car is entitled to lease payoff insurance, make sure the amount is at least 25% or above.
  • Make sure that the dealer has calculated the car’s value appropriately. It is always better to get a professional financial adviser’s help to determine the possible future value of the car.
  • You should go for a lease payoff only if the alternatives are not that worth it. So, evaluate and compare properly.

How to Finance Lease Payoff?

  • Financing through an auto loan
  • Some dealers offer lease-payoff financial plans. Check with the respective dealer to get one.
  • Take a loan from any finance company other than a bank.

Lease Buyout

It is also very similar to a lease payoff and well known as a lease-end buyout. In this case, after finishing the leasing period, you are paying the residual value and associated fees of the vehicle to gain ownership of it. Let’s check out its advantages and disadvantages. In this section, we detail the lease-end buyout’s advantages and disadvantages.

  • You are taking ownership of your familiar vehicle.
  • You have to pay only the current price of the vehicle, which is less than the lease payoff amount.
  • There is no need to find a new car; it is great peace of mind.
  • You are going to drive a car with familiar features and technological inclusions.
  • Upon a critical negotiation, you might get a good deal in terms of spending less for the car in consideration of market value.
  • Old technologies’ inclusion.
  • Increased insurance and maintenance costs.

When to Consider a Lease Buyout?

Here, the buyout decision is very much based on the factors mentioned for the lease payoff option. The additional one is that you become sure about the residual value of the car.

Must-consider Factors

  • Current market value of the car.
  • The total distance covered and the overall mechanical condition, along with the pain work.
  • Possible costs of any repair or restoration work.
  • Your ability to pay the buyout amount in full or in installments

How to Pay Lease Buyout?

  • Use a lease buyout loan.
  • Also, you can take out an auto loan. Ask the respective dealer to arrange the loan for you. But you must compare the offered one with others.
  • Cash purchase. Here, you pay the full amount to the dealer.

Learn More

3 Comparison Between Lease Payoff vs Buyout

Well, from the above discussion, you already know the advantages and disadvantages of lease payoff and buyout, along with when you should go for each one. Now, let’s explore the comparative context with some pinpointing factors.

1. Required Amount

First, in the case of a lease payoff, you have to consider paying a larger amount at a time due to the payment inclusion of the vehicle’s price, the rest of the installments, and car transfer-related fees. Whereas, for a lease buyout, you are required to pay the car’s price only plus the fees. 

In both cases, ultimately, the expense is nearly the same. But the considerable thing is your ability to pay a larger amount at a time in the case of a lease payoff.

2. Residual Value of Car

Second, when you go for a lease-end buyout, you are paying the car price equivalent to the exact residual value as per the current market rate. On the other hand, in the case of a lease payoff, the car price is projected by the dealer. 

The dealer fixes the price by evaluating the market’s demand and possible future growth. Here, after going for a payoff, you may receive depreciation in the value of the car in consideration of the predetermined leasing period.

3. Future Considerations

Third, deciding on a lease payoff means you are going for an early purchase. By taking ownership of the vehicle earlier, you may lose the chance to get a better deal later on. Or you may lose the chance of getting another car with more advanced functionalities and features while paying the same price.

Final Words

We hope that our detailed exploration of lease payoff vs buyout will help you in the decision-making process. Here, to select one, you must consider your financial ability, the result of the current market analysis, the possible future value of the car, the dealer’s terms, the car’s condition, leasing policies, and so on. 

However, do you know that there is another option apart from lease payoff or buyout? We suggest that, before making a final decision, you check for lease car trade-in facilities and benefits. Many people find the trade-in option more beneficial than a lease payoff or buyout.

One more thing we would like to mention is negotiating with the dealer for a waiver of dealer fees and other associated charges.

Frequently Asked Questions