How to use the lease buyout vs return calculator
- Enter the buyout price from your lease and any purchase fee the lessor charges.
- If sales tax applies to the buyout, enter the rate. It starts at 0 so that nothing is added unless you add it.
- Enter the market value of the car, from listings or a valuation of similar cars.
- Enter the costs of returning it: the disposition fee, wear charges and any miles over the allowance with the charge per mile.
- Read the advantage of buying and the table that shows how it is made up.
Formula
Total to buy = buyout price + purchase fee + sales tax
Cost of returning = disposition fee + wear charges + extra miles x charge per mile
Advantage of buying = market value - total to buy + cost of returning
A negative result is shown in parentheses and means returning the car is cheaper than buying it.
A $21,500 buyout on a car worth $23,000
With a $350 purchase fee the total to buy is $21,850. The market value of $23,000 is $1,150 above that. By buying you also avoid the $395 disposition fee, so the advantage of buying is $1,150 + $395 = $1,545.
If the market value is only $19,000, the car is worth $2,850 less than you would pay, and the advantage becomes ($2,455.00): returning is better by that amount. With 6% sales tax added to the first example, the total to buy rises to $23,140 and the advantage falls to $255.
Equity in a lease
The difference between what a car is worth and the buyout price is often called lease equity. It is positive when used cars are in demand or the lessor set the residual low, and negative when the residual was set high. Positive equity is a reason to buy or to sell the car to a dealer who will pay the market price. Negative equity means returning the car is usually cheaper unless you want to keep it.
The calculator adds the return costs to the advantage of buying, because buying lets you skip them. The Lease Mileage Overage Calculator can work out the charge for miles over the allowance.
What to check before you decide
Check the buyout price and any fee in the lease contract and ask the lessor for a written payoff quote, because it can include taxes and charges that the contract does not list. A pre-purchase inspection tells you about repairs that the market value does not show. If you plan to finance the purchase, a payment calculator such as the Car Payment Calculator shows the monthly cost.
To compare leasing with buying from the start, use the Lease vs Buy Car Calculator and the Car Lease Calculator. For what the car will be worth later, try the Car Depreciation Calculator.
Assumptions and limits
- The market value is what you could sell the car for, not the price a dealer asks.
- Sales tax is a single percent of the buyout price. Rules differ by place, so enter the rate that applies to you or leave it at 0.
- The cost of financing the buyout, and of buying a replacement car if you return this one, is not included.
- The prices and fees shown are examples. Use the numbers in your lease.
Frequently asked questions
What is a disposition fee?
It is a fee some lessors charge when you return the car at the end of the lease. It is the cost you avoid by buying the car.
Why add the return costs to the advantage?
If you return the car you pay those costs and walk away with nothing. If you buy it you do not pay them and you own the car, so they count in favor of buying.
What if my lease charges for excess wear?
Enter the amount in the wear field. If it is only an estimate, try a few values to see how much it changes the result.
Does the result include the monthly payments I made?
No. They are sunk costs. The comparison is only about the choice you face at the end of the lease.