About a lease buyout
A lease buyout is the option, written into almost every car lease, to purchase the vehicle at the end of the term (or sometimes early) for a price fixed when you first signed. That price is the residual value, the leasing company's guess at what the car would be worth at lease-end. Because the residual is locked in years ahead of time, it can drift far from what the car is actually worth when the lease matures. When the real market value rises above the contractual buyout price, you are sitting on built-in equity, and this calculator measures exactly how much.
The arbitrage is simple in principle: if the market will pay more for the car than it costs you to buy it out, you can exercise the purchase option, sell the car (to a dealer, a buyer, or an instant-offer service), and pocket the spread. This was widespread between 2021 and 2023, when a global shortage of new cars pushed used-car prices to record highs and lease residuals set in 2018 to 2020 suddenly looked like bargains. Many lessees walked away with thousands of dollars simply because their contract priced the car below the market.
The catch is that the headline spread is not pure profit. Buying out a lease usually triggers sales tax on the purchase price, and you may still owe a few remaining monthly payments or a purchase-option fee. The calculator nets all of those costs against the market value so you see the real, after-cost gain rather than a misleadingly large gross number. Only when the spread clears those costs by a comfortable margin is a buyout-and-sell worth the effort.
How it works
The calculation compares what the car is worth on the open market against the full cost of acquiring it through your buyout option. Everything you must pay to take ownership goes on one side; the market value goes on the other; the difference is your potential profit.
The residual is the purchase price in your contract. Sales tax is charged on that purchase in most US states, so it is a real cost of the buyout (enter your local amount). Remaining payments are any lease instalments still due if you are buying out before the scheduled end. A positive result is the equity you could capture; a clearly negative result means the better move is usually to return the car and walk away, exactly what the lease structure lets you do.
Worked example
Suppose your contract residual is $18,000, the car's current market value is $22,000, sales tax on the buyout is $1,500, and you still owe $2,400 in remaining lease payments.
- Total buyout cost: $18,000 + $1,500 + $2,400 = $21,900.
- Market value: $22,000 as offered by a dealer or instant-offer service.
- Arbitrage profit: $22,000 - $21,900 = $100.
- Judgement: a $100 spread is too thin to bother with once paperwork and risk are counted.
Reference: when a buyout makes sense
Net profit (market value minus residual, tax, and remaining payments) and the typical verdict.
| Net profit after costs | Verdict |
|---|---|
| Above $2,000 | Strong arbitrage: buy out and sell |
| $500 to $2,000 | Modest gain: worth it if the process is easy |
| $0 to $500 | Marginal: usually not worth the hassle |
| Below $0 | Return the car or keep leasing; do not buy out to sell |
Note: if you actually want to keep the car, a small or even negative arbitrage can still be a fair deal, because the residual is a known, fixed price rather than a negotiation.
Common pitfalls
- Mistaking the gross spread for profit. Market minus residual ignores tax and remaining payments, which often consume most of the gap. Always use the after-cost figure.
- Forgetting sales tax. Buying out a lease is a purchase, and most US states tax it. A four-figure tax bill can flip an attractive spread into a loss.
- Ignoring a purchase-option or disposition fee. Some leases add a fixed fee to exercise the buyout; check your contract and include it in costs.
- Assuming the dealer offer equals market value. Trade-in and instant-offer prices are below private-party value. Get more than one quote before treating a number as "market".
- Overlooking that returning is free. A lease lets you hand the car back at term-end with no obligation. If the buyout math is negative, walking away is usually the rational choice.
Frequently asked questions
What is a lease buyout?
A lease buyout is the option to purchase your leased car at the residual value, the price your contract fixed at signing. You can buy out at lease-end or sometimes early. Because the residual was set years ago, it may be higher or lower than the car's current market value, which is what determines whether buying out is a good deal.
How do I know if my lease buyout is worth it?
Compare the car's current market value against the total cost to buy it out: residual plus sales tax plus any remaining payments or fees. If the market value is meaningfully higher, you have equity you could capture by buying out and selling. As a rule of thumb, a net gain above about $2,000 after all costs makes the effort worthwhile.
Do I pay sales tax on a lease buyout?
In most US states, yes. Buying out a lease is a vehicle purchase, so it is taxed like one, usually on the residual price. The exact rate and rules vary by state, and a four-figure tax bill can erase what looked like a profitable spread. Always include your local sales tax in the total buyout cost before judging the deal.
Can I buy out my lease and immediately sell the car?
Often yes, and this was a popular move in 2021 to 2023 when used-car prices spiked above lease residuals. You exercise the purchase option, take title, and sell to a dealer, an instant-offer service, or a private buyer, keeping the spread. Confirm your leasing company permits third-party buyouts, as some restricted this during the price boom.
What if the buyout costs more than the car is worth?
Then do not buy out to resell. A lease is designed so you can return the car at the end of the term with no further obligation, which is the better option when the residual sits above market value. You would only buy out at a loss if you specifically want to keep that particular car and value the fixed, known price.