Why You Should Buy Back Your Leased Car

You might have equity in your leased vehicle. Soaring prices for used cars mean the buyout price could be lower than its market value.

If you’re nearing the end of your lease, it might make sense in the current market to purchase the vehicle from your leasing company. Most contracts include a provision to buy the vehicle at a precalculated price set at the beginning of the lease. In normal times, it’s usually not such a good deal, but with new and used cars in short supply and prices at all-time highs, the buyout price might represent big savings and actual equity in the vehicle, if you turned around and sold it to a third party. It all depends on when you signed your lease.

“There was no way for the folks that drew up leasing contracts a few years ago to know that those cars would be valued so high today,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “That means they likely already agreed to sell you a car for far less than what it’s worth today.”

For example, Jen Stockburger, director of operations at CR’s Auto Test Center, noticed that the buyout price for a 2018 Subaru Impreza she was leasing was much less than the car’s market value when she first checked the price. She decided to buy out the lease for $15,760 last year after a quick online search showed that CarMax would give her $18,000 for it—a more than 14 percent premium. She may have been able to sell it for more in a private sale, but she ended up keeping the car. Stockburger checked the price again a couple of months after she bought back the lease, and CarMax offered her even more—$18,400, or almost 17 percent higher than the lease buyout price.

“I could just as easily have bought out the lease and then unloaded the car and made some money,” Stockburger says.

According to the August 2022 Consumer Price Index report, used-car prices are nearly 48 percent higher than they were in August 2020 and more than 42 percent higher than in August 2019. That’s when the calculations for many of the cars coming to the end of two- and three-year leases now were being made. “There is a strong relationship between buyouts and used prices,” says Nick Woolard, an analyst at TrueCar. “When used prices are weak, more customers walk and let the dealer keep the vehicle.”

When car leases end, a lot of consumers simply choose to turn in the vehicle and lease another new vehicle from the same automaker. But the math has changed lately because of the pandemic and because a global shortage of microchips needed in new cars that has pushed up prices for vehicles new and used.

While everyone was stuck at home in 2020, not buying cars, the semiconductor manufacturers that supply automakers with the microchips they need to build cars were in a quandary as car companies shut down production lines to keep workers safe and to grapple with the sharp drop-off in demand for new cars. It’s rarely good for any company to have unused stock sitting around, but fortunately for the semiconductor manufacturers, demand for the chip-hungry products that people were using at home—TVs, tablets, smart appliances and the like—soared. The chip companies found a home for their product.

Fast-forward to the first few months of 2021, when consumer demand for both new and used cars came roaring back. Automakers were (and still are) hungry for microchips, needing dozens for every car, but suppliers were focused on other products and recovering from myriad challenges, including a fire at a major chip factory. The semiconductor industry is still working to adjust to the new demand, but it is taking time to get rolling. Pat Gelsinger, CEO of Intel, a major manufacturer of microchips, said in April that the semiconductor shortage could stretch into 2024.

Because of the short supply of chips, automakers have been slowing and pausing new car production as needed, thereby reducing availability of new cars, and pushing up demand for used models.

According to TrueCar, almost all leases have a buyout clause that allows the consumer to buy the car at any point during the lease. But the rate of depreciation is precalculated, so the leasing company can’t change the buyout price based on current market conditions. Although extremely high used-car prices have put a lot of consumers in a tough spot, they’re a boon to people who want to buy out a lease. Experts say that at the very least, it’s worth getting an estimate for what your vehicle is worth and then comparing it to the end-of-term value stipulated in your lease contract.

There are basically two options for a lease buyout. You could buy out the lease and have a car for much less than you would pay for the same model if you bought it from a dealership or a private seller, or you could buy out the lease and sell the car yourself. Keep in mind that many manufacturers might not allow third-party buyouts of leased vehicles—the scenario where the consumer exercises the lease buyout option, but transfers the vehicle directly to a dealer or other buyer to avoid paying sales tax. (TrueCar says most states require buyers to pay sales tax when ownership is transferred from the leasing company.) If there is such a contractual limitation, you would need to sell the car yourself. Also, check to see whether there are fees for breaking your lease if you decide to buy it out early.

The option that’s best for you depends on your situation. If you no longer need the car—you’re now working remotely, for example—buying and selling could be a good choice. If you still need a car, though, hanging on to the one you have can be advantageous. For starters, an off-lease vehicle may still be under warranty. Even if it’s not, and is in need of repairs, CR recommends looking into the cost of repairs on a car you already own. There are two reasons for this: First, another car—new or used—is likely to be more expensive than it would be under normal circumstances; second, you’ll already be familiar with the problems inherent in a car you already own, while another car may have unforeseen issues. It might make sense to repair the car you already have.

Benjamin Preston

Benjamin Preston has been a reporter with the Consumer Reports autos team since 2020, focusing on new and used car buying, auto insurance, car maintenance and repair, and electric bikes. He has covered cars since 2012 for the New York Times, Time, the BBC, the Guardian, Road & Track, Car and Driver, Jalopnik, and others. Outside CR, he maintains his own small fleet of old cars and serves as a volunteer firefighter, specializing in car crash response and vehicle extrication.