Pros & Cons buying leased car at end of the lease

I would like to know your opinions on Pros & Cons on buying your leased car at the end of the lease.

For example, I returned a 2015 Lexus GS 350 F Sport back to the dealer a month ago.
The payoff to purchase the vehicle at end of the lease was $42,xxx. I noticed yesterday the dealer I returned the car to listed the vehicle for $38,xxx. Obviously there is room the negotiate the price lower if someone goes to buy the vehicle. However, who takes the loss here?

Would like to know what you guys think about buying your leased car at the end of the lease.

Thank you for posting this - you have helped confirm something important about the lease turn-in process with captive finance companies. Toyota Financial I believe has a process where its Toyota/Lexus dealers buy lease turn-ins from Toyota Financial at the going market wholesale rate. The dealers then are able to sell those vehicles and ideally make a profit on the used vehicle sale.

This is important because the turn-in should act as a competitive bargaining chip for you on the new lease deal. For instance, perhaps the lowest you can get on a new lease with no turn-in is a $4,000 total lease cost. With the turn-in the dealer might be able to make another $2000 on the used sale, and might be able to consider “losing” $1000 on the new sale and make back the money when they sell the used vehicle to someone else. Thus, your total lease cost drops to $3000 instead of $4000 because the dealer can work off the turn-in as well.

Long-winded way of saying a lease turn-in might make numbers that seem impossible, possible because the dealer has another way to make money on your deal.

I realized I didn’t answer your question hardly at all, but I wanted to post what I wrote above. My bad!

I think Toyota Financial/Toyota is eating the loss on the residual vs market value discrepancy.

On buying the car at the end of the lease: It seems like you made a great decision on turning in the vehicle, as you can see from the dealer’s pricing of your vehicle, you would be several thousand dollars under water. As a general rule, if the residual is more expensive than what you can buy a similar vehicle for, I’m not sure why anyone would buy the leased vehicle under those circumstances. Buying/trading makes sense if you have equity at the end - buy if you want to continue driving it - trade if you want out and pocket the cash.

As always, the entity taking the actual loss is the owner of the vehicle, which is the lease company (Toyota/Lexus Financial in your case).

What we talk about with regard to Residual Values is just a projection of depreciation. In many cases, the actual depreciation is higher so the leaseCo absorbs the less.

On similar topic, does anyone have experience in returning a Electric Vehicle? Used EVs(Leaf, Spark etc) are dirty cheap and wondering if the bank/finance company negotiate the residual at lease end. I have an I3 and I love the car. No way I’m going to buy it at $25k but I would consider at say…$10k =). I’m sure bank doesn’t want these outdated technology sitting in the lot. Was hoping to buy it cheap and swap a battery for few grand.

Depends on which bank/FinCo but AFAIK they generally do not want to directly negotiate with you*. They’ll sell to one of their dealers at wholesale and let the dealers earn a profit flipping it.

*If I were to speculate on the reasons, I would guess: (1) sets a bad precedent, once word gets out every lessee will want to negotiate, (2) that’s not really a business they want to be in, and so (3) they don’t want the overhead and related costs of having to dedicate time to negotiate sales with tons of lessees.

Three years ago auto companies were writing leases like crazy. As a result there is a massive glut of vehicles being returned to dealers.

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I have a 2016 fiat 500e 3 year lease payoff will be 18k but I see dealers selling for 10k lol

The OP got in on the wave of 24/27mo leases that pumped the Lexus new car volume to amazing levels. Roughly 80% of those GS buyers made the wise decision of walking away at turn in. This captive allows the grounding dealer to buy these vehicles at either the original RV or the current market value (set by the captive), whichever is lower. Or they can pass on it and the car goes to various auction channels until it is eventually sold and the loss is realized.

The decision to buy out or turn in your lease car is fairly easy in today’s age of used price data that is available to consumers. A couple months before termination start looking at current prices on your model at your mileage to see if you have any equity in it. In the current market, if you have a luxury car or mainstream car, you most likely won’t. If you have a truck or utility vehicle, your chances are better. If you have a Hybrid or EV lease, don’t waste your time looking up potential equity in your vehicle.

The captive or bank would love to reduce their losses any way possible but none of them that I know of are set up to negotiate with the lease customer directly to reduce the buy out option price (RV). They are only set up to sell the vehicle to a dealer, either directly or through an auction transaction and realize their losses that way.

[quote=“RVguy, post:9, topic:6560, full:true”]This captive allows the grounding dealer to buy these vehicles at either the original RV or the current market value (set by the captive), whichever is lower. Or they can pass on it and the car goes to various auction channels until it is eventually sold and the loss is realized.


@RVguy, do captives such as TFS (Toyota) allow dealers to buy at current market value before the end of the lease? Say, in the first or second years of a 36+ month lease?

One big negative of a lease buyout that no one ever seems to mention is that when you buy your car at the end of your lease, you need to pay BOTH sales tax and registration fees on it since you don’t own the car and are buying it from the leasing company. This can amount to many thousands of $$ in states with high sales tax and a high RV. The last car lease I bought out had a RV buyout figure of about $17K. However, sales tax in CA is 9% so that added $1530 to the buyout figure, plus another ~$250 for new DMV registration fees (even if the car was up to date on registration, you need to register it AGAIN when you transfer ownership from the leasing company to yourself). Total. buyout was thus $18,780 on a car with a $17,000 RV according to lease terms.

That being said there can be pros depending on the situation, but everyone needs to be aware that the agreed upon buyout is not the final cost you will be paying to buy the car.

You have a better chance if the the lease holder is not a manufacturers captive financial group. My 2014 Volt lease is held by US Bank and lease maturity is 2/1/17. Residual is $21,XXX, but every time I call them they lower my buy-out price. Currently it’s at $13,651 with all costs included. I’ve made a counter offer but have to call back in 5 business days to see if it’s accepted. Ally will NOT negotiate.

I turned in my three year old Prius recently…I would have purchased it what dealers were valuing it (12K on the high side), but my payoff was 16.5 and Toyota does not negotiate.

I was afraid I would get hammered on excess wear and tear, but it turns out the dealer bought the car (it’s now on their website inventory at 20K)…I guess they had the option of buying it much lower than my cost…can’t imagine they would go through all the refurbishment required (body work, scratches, 30K service, new tires) for a 3.5K profit at max. And that’s if they find someone to pay asking price.

@max_g, no TFS doesn’t allow dealers to buy any any reduced price before the lease termination. I don’t know of any lender that does do it. Most captives and some non-captives have programs in place to try and bring some or all vehicles on their portfolio back early where the last number of monthly payments are waived. The customer is required to lease another car with that lender and it helps prop up the loyalty numbers.

Several lenders also are targeting competitor’s customers who are close to coming off lease and entice them with a targeted competing offers on a new lease.

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Thanks for responding. So, when trying to trade in a leased vehicle a long way before termination, even if it’s to lease again with the same captive lender, there’s no way around the substantial negative equity?

Not that I am aware of. They will be more than happy to roll that negative equity into another deal as long as it stays under the max allowance limit (usually 120-130%). Your best bet is to just wait for the lease to terminate and walk away. At least you know you aren’t over paying on depreciation and the captive will take a loss on it when they have to realize the loss.

What model are you currently in with negative equity?

Trying to advise a friend with a 2017 Sienna leased in Sept. who wants out (most likely replacement, if a Toyota, would be a Highlander).

there are a bunch of benefits to buying out a car at the end of your lease. Heres a solid infographic with more info:

If you paid for 15k/year miles but ended up using only limited miles - and if it’s a reliable brand - with greater resale value than lease-end-buy price - may be worth buying it. Some dealers may even chip-in CPO warranty for a small fees (you be lucky if you can get it at-cost price - which is usually 1/3rd it’s quoted price - assuming not much conditioning/prep)

On the contrary your own company/partneship leased a very-low residual vehicle for you - such as - Maserati or Audi/Porsche etc brands., you may do lease end buyout - which already at decently discounted price off MSRP (and lower tax basis) – assuming you didn’t have many problems with it - and expecting not many future issues based on 2-3 years of your careful drivership.