Spelling: buy·out loan
What Is a Buyout Loan?
A buyout loan is a type of financing that allows you to purchase your leased car at the end (or sometimes before the end) of your lease.
The loan covers the car’s residual value, along with any applicable fees or taxes, so you can move from leasing to ownership without paying the full amount upfront.
Buyout Loan Meaning in Car Leasing
In the world of car leasing, a buyout loan is what bridges the gap between leasing and owning. Instead of returning your vehicle, you use a loan to cover the buyout price listed in your lease agreement. The buyout price typically includes:
- The residual value (pre-determined at the start of your lease)
- Sales tax
- Title, registration, and possibly a purchase option fee
This option is especially helpful if your leased car is worth more than the residual value, giving you equity that you wouldn’t get by returning it.
How Buyout Loans Work
Buyout loans work similarly to auto loans but are specific to lease-end purchases. Here’s how the process generally unfolds:
- You request your payoff quote from the leasing company, which includes the car’s residual value and any additional fees
- You apply for a lease buyout loan through a lender or service like Lease End Department
- Once approved, the lender pays the leasing company, and the car is transferred into your name
- You repay the loan monthly over a term that usually ranges from 24 to 72 months
Tip: Some lenders offer lease buyout loans with no prepayment penalties, giving you added flexibility.
When a Buyout Loan Makes Sense
A buyout loan can be a financially smart move, but it’s not for everyone.
It makes the most sense when:
- Your vehicle is in great condition and you’ve had minimal repairs
- You’re well over your mileage allowance, and returning the car would trigger penalties
- Your car’s market value exceeds the residual value, giving you positive equity
- You love the car and want to avoid the hassle of shopping for a new one
Example: If your buyout quote is $17,000 and the car is worth $20,000, a buyout loan lets you keep the difference as equity, while turning your lease into long-term ownership.
Buyout Loan in Car Leasing Agreements
You may not see “buyout loan” written explicitly in your lease agreement, but you will see references to a purchase option, residual value, or lease payoff amount. These terms signal that you’re allowed to buy the car at lease-end, and a buyout loan is how many drivers choose to do it.
Before your lease ends, your lender may notify you of your options. If a buyout loan makes financial sense (for example, your car’s market value is higher than the residual), it’s often the smarter move.
Related Terms in Car Leasing
- Previous Term: Buyout
- Next Term: Capitalized Cost
- Related Terms: Lease Payoff Amount, Residual Value, Purchase Option Fee