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How to Buyout Your Car Lease: A Guide for Massachusetts Residents

Lease Buyout - Car Lease
Table of Contents

The decision to buyout your car lease often comes with many benefits. As the end of your lease approaches, you might find yourself attached to the vehicle and may be considering a buyout option. For Massachusetts residents and those insured in the Bay State, here’s a comprehensive guide to buying out your car lease.

What are the available options for owning a car in the US? You can buy a car with cash, take a loan, or get a car through a lease. Leasing is the best option for people who love owning new cars every few years. You get to use a vehicle for around three years or less.

Leasing a car can, however, be expensive. A typical lease payment can account for $400 to $1000 monthly. This is over the budget of an average middle-class American family. A car lease buyout prevents you from paying the high fees associated with a broken lease. A $20,000 lease on a new car can cost you thousands in taxes, penalties, and interest payments. But did you know you could save thousands by buying out your lease before it ends? Keep reading to learn more reasons to buy out your lease.

Understand Your Lease Agreement

Before taking any action, it’s crucial to be familiar with your lease agreement. Key things to look for:

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  • Purchase Option Fee: This fee is in addition to the purchase price if you decide to buy the car.
  • Residual Value: The predetermined value of your car at the end of the lease term. This is usually the amount you’ll need to pay to own the vehicle.
  • Early Termination Fee: If you’re considering buying out the lease before its end date, there might be an associated fee.

Decide on the Type of Buyout

There are typically two moments when you can buy out your lease:

  • Early Buyout: Before your lease term ends. This might be more expensive as it may include additional fees and the remaining lease balance.
  • End-of-Lease Buyout: At the end of your lease term. This is typically straightforward, involving paying the residual value and any purchase option fee.

Assess Your Car’s Current Market Value

Before committing to a buyout, research your vehicle’s current market value. Websites like Kelley Blue Book or Edmunds can give you an estimated value. If the residual value in your lease is significantly higher than the current market value, it might be worth negotiating or reconsidering the buyout.

Sales Tax for Car Leases

In Massachusetts, if you decide to buy out your lease, you will be subject to the state’s sales tax. However, Massachusetts has a unique approach compared to some other states when it comes to the sales tax on leased vehicles.

Here’s how it generally works:

  1. Sales Tax on Monthly Lease Payments: When you initially lease a vehicle in Massachusetts, you pay sales tax on each monthly lease payment rather than on the entire vehicle value. This is calculated by multiplying the sales tax rate (6.25% as of my last update in 2022) by the monthly payment amount.
  2. Sales Tax on Lease Buyout: If you decide to buy out your leased vehicle at the end of the term (or earlier), you must pay the Massachusetts sales tax on the buyout amount. This means you’ll pay the state sales tax rate (6.25%) on the residual value of the vehicle (the price you agreed to pay to buy the car at the end of the lease term).

For example, if your lease buyout amount (residual value) is $15,000, you would owe $937.50 in sales tax (6.25% of $15,000).

However, it’s essential to note that tax regulations and rates can change. It’s always a good idea to consult with the Massachusetts Department of Revenue or a tax professional to get the most up-to-date and accurate information before making a lease buyout decision.


Top Reasons to Buyout Your Lease

Leasing a car is convenient and low-risk. However, it comes with the burden of a long-term commitment, like insurance payments.

With leasing, you pay to use the car instead of paying to own the vehicle. You can use your lease deal to get a great car.

Here are great reasons to buy out your car lease:

Mileage Over or Under

The average auto lease duration is three years or 36,000 miles. By the end of the three years, you could have underutilized or overused the limit.

Under usage means the company owes you. Also, if you overuse, you will pay more, which can be costly. Buying out the car is an ideal solution for both situations.

Residual Value vs. Car Value Car Is Worth More Than Buyout Amount

If the value of your car is greater than the buyout price, consider buying out your lease. This will save you thousands and allow you to keep driving a better car. This is called a short sale.

Your monthly payments are based on a car’s residual value. It’s possible to get a better buyout price than that residual value. If you are 6-12 months from the end of your lease, you can get a great deal.

Before the buyout, evaluate the car’s value. Estimate the value of your vehicle using the Kelly Blue Book or National Automobile Dealers Association (NADA) guides. These books give you the average trade-in price and retail value of your particular vehicle.

Next, determine how much residual value is left on your lease. The residual value is a percentage of the original value of your vehicle. This will be returned to you at the end of your lease.

The residual value is based on the projected future value of your car. Your leasing company determines it. The residual value can be found in the lease agreement.

Excessive Wear and Tear

The car lease buyout allows you to enjoy leasing benefits without the high monthly payments and excessive wear and tear. With lease buyout programs, you pay for the vehicle’s depreciation over time. This can reduce the money you pay at the end of your lease.

Cars lose their value the moment they drive off the lot. The depreciation doesn’t stop there. After one year, they will drop an additional 15% to 20%.

With a buyout, you buy the car’s remaining value from the dealer. You can then sell the vehicle yourself and pocket the difference.

Friends Looking to Buy a Car

If you have a close friend interested in your car, you can buy out the lease. This can make you some money and enable you to offload the lease burden.

Leased cars are cheaper because they depreciate faster than standard cars. You can buy it at a lower rate and sell it. This trade-in doesn’t require you to pay any taxes on the profit you make.

You can only sell a leased car to a dealer or someone willing to go through the “lease pass-through” process. A friend would be an ideal candidate. You cannot sell your leased vehicle directly to another person.

If you do, you will be required to pay the remaining lease amount. However, you can sell it to a dealer who can immediately sell it to your friend. This saves you from paying sales tax.

You Love the Car

Today, buying a car has much more to do with how they make you feel. People also consider how the car fits into their personality.

Buying out a lease is a good idea if you love your car and want to keep it forever. However, loving the car is not enough. Here are five questions that will help you decide whether to go ahead with the buy:

  • How much money do you have?
  • How much money are you willing to pay?
  • What is your credit score?
  • Are you ready to keep your car for a long time?
  • Are you ready to make a big commitment?
  • You might think that people buy for logical reasons. They need a new car, so they go out and buy one. They need a new house, so they purchase one.

The truth is people are driven by emotion, not logic. If you love the car and can afford it, it’s enough reason to buy out the lease. Remember also to consider car insurance during a buyout.

Advantages and Disadvantages of Buying a Car and Selling It

The purchase and sale of a car can be a highly profitable transaction. Before committing to buying and selling a car, you should know what you’re getting into. Here are some advantages and drawbacks of buying and selling a car.


  • You get to buy a car at the normal market value
  • You make money from selling the car
  • You can use the car while you’re waiting to sell it (if it’s paid off)


  • If you use the car, it will depreciate over time.
  • If you don’t have time to work on cars, it might drain you into losses
  • The process of buying and selling cars is overwhelming
  • If you are new to buying and selling cars, you may wonder where you sell the leased car. You can either use a private party sale or sell to online dealers.

Private Party Sale

A private party car sale is simply a car sale between two private parties. No one is acting as a broker. They can be especially helpful for used car dealers.

Sell to Online Dealers

The Internet has been a great help to selling and buying cars. It makes the process much easier. Online used car dealers are more convenient. They provide effective platforms that attract potential buyers.

Trading in a Lease Pros and Cons

Trading in a lease transfers an asset from the seller to the buyer. This is in exchange for a stream of payments over time.

You can use the trade-in transaction to acquire a car. The process has the following benefits and drawbacks:


  • It saves you hundreds of dollars
  • It allows you to own a car
  • It keeps you from tying up cash in your operating budget


  • It can harm your credit score
  • If you are not careful, it can be more costly
  • To enjoy the benefits of trading in a lease, use a professional to make accurate evaluations. This will save you from future liabilities.


Frequently Asked Questions About Car Lease Buyouts

Can I trade in the leased vehicle before the lease is up?

Yes, you can trade in a leased vehicle before the lease term is up, but there are some key considerations and steps to be aware of:

1. Early Termination Fees:

Many lease agreements have clauses that require you to pay an early termination fee if you decide to end the lease before its official end date. This fee can be substantial, so it’s essential to understand what you might be responsible for before proceeding.

2. Payoff Amount:

Your lease agreement will have a buyout or payoff amount, which you would owe if you were to purchase the vehicle outright at any given time during the lease term. If you’re considering trading in the leased car, you’ll need to know this amount, as it’s what you’d need to pay the leasing company to get out of your contract.

3. Equity Position:

When you trade in a leased vehicle, you’ll want to compare the car’s current trade-in value to the payoff amount:

  • If the car’s trade-in value is higher than the payoff amount, you have positive equity, and you can use this as a down payment on a new car.
  • If the car’s trade-in value is lower than the payoff amount, you’re in negative equity. This means you’d have to pay the difference to end the lease or roll this amount into a new car loan or lease, which isn’t ideal.

4. Visit Multiple Dealerships:

If you’re thinking about trading in your leased vehicle, visit multiple dealerships to get several trade-in offers. This will help you determine if any dealership is willing to offer you more for your vehicle, potentially covering the buyout price or getting you closer to it.

5. Negotiate:

When you trade in a leased car early, you’re essentially asking the dealer to buy the car from the leasing company on your behalf. The dealer will then sell or lease you another vehicle. It’s crucial to negotiate both the trade-in value of your current leased car and the terms of your next lease or purchase.

6. Consider Lease Transfers:

If you want to get out of your lease but don’t necessarily want to trade in for a new vehicle, some companies allow lease transfers. This lets someone else take over your lease payments and the vehicle. Companies like Swapalease or LeaseTrader facilitate these transactions.

Final Thoughts:

While it’s possible to trade in a leased vehicle before the lease term concludes, doing so requires careful financial consideration. Depending on the terms of your lease and the car’s current value, it might make more financial sense to wait until closer to the lease’s end or explore other options to exit the lease. Always read your lease agreement closely and consult with financial experts or trusted dealerships before making decisions.

Do I have to go to my car dealer to buy out my lease

No, you don’t necessarily have to go to the dealership where you originally leased your vehicle to buy out your lease. However, there are a few steps and considerations to be aware of:

1. Contact Your Leasing Company:

Before making any decisions, contact your leasing company directly. They are the entity holding the lease, not the dealership, so they can provide you with specific details, such as the current buyout amount.

2. Get the Buyout Amount:

The buyout amount or residual value is the price you can purchase the vehicle for at the end of the lease. It’s predetermined at the beginning of your lease term. However, if you’re thinking about buying the car before the end of the lease, the buyout amount may also include remaining lease payments and potential early termination fees.

3. Secure Financing (if needed):

If you’re not buying the car with cash, you’ll need to arrange financing. While dealers often offer financing, you can also secure a loan from your bank, credit union, or another lender. Shopping around might help you find better rates.

4. Pay and Transfer Ownership:

Once you’ve decided to proceed with the buyout and have the necessary funds or financing in place, you can pay the buyout amount to the leasing company. After payment, the leasing company will release the title to you or your lender. Make sure to transfer the title and registration to your name at your local motor vehicle department.

5. Handle Taxes and Fees:

When buying out a lease, there may be taxes and fees associated with the purchase, depending on your jurisdiction. Ensure you’re aware of these costs and factor them into your budget.

6. Re-Evaluate Insurance:

Since you’ll now own the vehicle, you may want to re-evaluate your auto insurance. Depending on your coverage during the lease, you might decide to adjust your policy now that you’re the vehicle owner.


While you can handle a lease buyout without visiting the original dealership, it’s essential to be thorough and ensure you’re meeting all legal and financial obligations. Some people find it convenient to go through the dealer because they can help facilitate the process, but it’s not a requirement. If you’re unsure about any steps or need guidance, consider consulting a financial advisor or attorney familiar with auto transactions.

What Are the Risks of Buying Out a Car Lease?

Buying out a car lease can be a favorable option for many people, especially if they’ve grown attached to the vehicle or find its residual value appealing. However, like any financial decision, there are potential risks to consider:

  1. Overpaying for the Vehicle: One of the primary concerns is whether the buyout price (or residual value) of the vehicle is higher than its current market value. You might end up paying more than what the car is worth in the open market. Researching the current value of your car using tools like Kelley Blue Book or Edmunds can give you a better idea of its market value.
  2. Hidden Costs: While the residual value is predefined in your lease agreement, there might be other fees or costs associated with buying the vehicle. These can include purchase option fees or any penalties if you’re considering an early buyout.
  3. Warranty Expiration: Leased vehicles are typically newer and often under the manufacturer’s warranty. If your warranty expires around the time of your lease end, you might be taking on a vehicle without protection from potential repair costs.
  4. Maintenance and Repairs: If you’ve had the car for several years, it might be nearing the time for more significant maintenance tasks (e.g., tire replacements, brake work, or more). Since you’ve been driving the car, you’ll have a better idea about its condition, but it’s essential to anticipate these upcoming costs.
  5. Financing Rates: If you don’t have the cash to buy the car outright, you’ll need financing. Sometimes, financing rates for used cars (and a lease buyout is technically a used car purchase) can be higher than those for new cars. It’s essential to shop around for the best rates.
  6. Depreciation: Cars depreciate, and some models lose their value faster than others. If you buy out your lease and decide to sell the car shortly after, you might not get much return on your investment, especially if the vehicle has depreciated faster than anticipated.
  7. Insurance Changes: Owning a car might change your insurance premiums. It’s possible your rates could increase or decrease based on your coverage decisions post-buyout.
  8. Emotional Attachment: Sometimes, the decision to buy out a lease can be driven more by emotion than logic. It’s crucial to separate any sentimental feelings for the car from the actual financial and practical implications of the buyout.
  9. Missed Opportunity for New Technology and Features: Vehicles are continuously evolving, with new safety features, technologies, and fuel efficiencies. By buying out your lease, you might be missing out on advancements that newer models offer.

What’s the difference between lease payoff vs buyout?

The terms “lease payoff” and “lease buyout” are sometimes used interchangeably, but they can have distinct meanings, especially in the context of the timing and the associated costs.

  1. Lease Buyout:
    • Definition: Refers to the process of purchasing the leased vehicle, typically at the end of the lease term.
    • Amount: The buyout amount is usually the residual value of the vehicle, which is predetermined at the beginning of the lease. It represents the estimated value of the car at the end of the lease term.
    • Timing: Most commonly associated with the end of the lease period. However, some leases may allow for an early buyout option, but this might come with additional fees.
    • Purpose: For lessees who decide they want to keep the vehicle after the lease term has ended or those who want to purchase the vehicle before the end of the lease term.
  2. Lease Payoff:
    • Definition: Refers to the total amount you’d need to pay to terminate the lease early and become the owner of the vehicle.
    • Amount: The payoff amount includes the residual value plus any remaining lease payments and potential early termination fees. Essentially, it’s the total cost to end the lease agreement before its scheduled conclusion.
    • Timing: Relevant when considering ending the lease contract before its official end date.
    • Purpose: For lessees who want to get out of their lease early, either to buy the car or to get into a different vehicle.

Key Takeaway: While both terms refer to purchasing the leased vehicle, the primary difference lies in the timing and the total cost. A lease buyout is typically straightforward and involves paying the predetermined residual value, while a lease payoff is more complex and can involve several additional costs if you’re trying to end the lease early.

Final Thoughts

Buying out your car lease can be an excellent decision if you’ve grown fond of your vehicle and find the buyout price fair. However, ensure you understand all the associated costs, tax implications, and insurance changes. As always, when in doubt, consult with professionals, be it your leasing company, a financial advisor, or your trusted Massachusetts insurance agent. Safe driving!

LoPriore Insurance Agency is an independent insurance with a wide range of insurance options. If you consider a car lease buyout, you will need proper insurance coverage. Contact us to get quotes for your auto insurance coverage.

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