What Happens at the End of a Car Lease?

When your lease ends, you typically have four options: return the car, buy it, extend the lease, or trade it in for something else. Which one makes sense depends on your car’s value against the buyout costs, and what you’d owe on wear and tear and mileage charges if you return it.

Start by reviewing your lease agreement for specific terms. They vary more than you might expect.

What are your options at the end of a car lease?

What you do after your vehicle lease expires will depend on the leasing company and the terms included in your contract.

Return the vehicle

You can return the vehicle to the dealer or leasing company when your lease ends. You’ll typically need to schedule the return, but the leasing company should reach out near the end of the agreement anyway.

The dealer will inspect the vehicle and assess any applicable fees. You’ll be expected to pay those fees when turning in the vehicle, along with the keys and any other required accessories.

Returning the vehicle can be the simplest option for most people who lease. If you no longer want the car or buying it would cost more than its current market value, you may choose to return it.

Buy the vehicle

Your lease agreement may give you the option to purchase the vehicle at a predetermined price. That price is usually the residual value — or what your vehicle is estimated to be worth at the end of the lease term. Residual value is typically set when you sign the lease, though some contracts base the purchase price on the car’s fair market value at the lease’s end instead. Also account for any taxes and applicable purchase-option fees, if required.

Buying the vehicle may make sense if you like the car and it’s still in good condition. But make sure to compare the market value to the amount you would pay to purchase it. Generally, the vehicle should be worth more than the purchase amount.

Extend or renew the lease

Some leasing companies may let you extend your current lease or enter a new lease agreement. An extension can give you more time with the vehicle if you need time to decide what to do next.

The terms of your extended lease may not match the original, however. Talk to the dealer about your extension options, including how much your payments and mileage allowances would be.

Trade in and lease a new car

You may also choose to return your current vehicle and lease another one. The dealership can help you compare available vehicles and determine whether your current lease has any remaining obligations. Ask for a detailed cost breakdown so you can account for all fees and expenses.

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What happens when you return a leased car?

If you decide to return the vehicle, the dealer will inspect it thoroughly. Additionally, your lease contract will determine what you might owe at the end of the agreement. Here’s what to expect.

End-of-lease inspection

The end-of-lease inspection is one of the most important parts of the return process. The dealer will inspect the vehicle for wear and tear, damage, and other imperfections that could affect its value. They’ll also check the mileage to see whether you remained within your allotted limits for the duration of the lease.

Excess mileage charges

Most leases include mileage allowances. If you exceeded those limits, you’ll be charged a specific amount for every additional mile driven. For example, a lease might allow 12,000 miles each year, charging a set fee for each extra mile.

Wear-and-tear fees

Dealers expect some normal wear and tear on leased vehicles. However, they can charge you for damage that exceeds the standards outlined in your contract. And you may not agree with the dealer’s assessment and fees.

Disposition fee

A disposition fee covers the costs associated with processing a returned leased vehicle, such as the inspection. Some contracts may waive this fee if you buy or lease another vehicle from the same dealer.

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How buying out your lease works

Buying out the contract is one of the most common end-of-car-lease options, but it’s not the right approach for everyone. Here are some things to consider before you buy out your lease.

Residual value and purchase price

When evaluating your end-of-car-lease options, an important factor at play is your vehicle’s residual value. You don’t want to buy a vehicle that you’ll be upside down in. The vehicle’s residual value should be equal to or greater than the purchase price.

Your actual buyout may include more than the residual value. For instance, the dealer may add taxes, registration, and a purchase-option fee to the transaction. Ask for an itemized breakdown before you move forward.

When buying makes sense

Buying the vehicle you leased can be a good option if you like it and want to keep it for a few more years. You may also decide to buy out the lease if the vehicle’s current market value exceeds your total purchase cost.

Residual value isn't your final price. Expect taxes, registration, and a purchase-option fee on top. Ask for the full payoff amount in writing before you commit.

How your car lease affects your credit

Leasing companies typically report payment activity to at least one of the major credit bureaus. When you make on-time payments, the lease can positively affect your credit. Missed payments can negatively affect your credit score.

Read more >> Lease or Buy a Car: Making the Right Choice for You

Make car buying and leasing easier with stronger credit

Whether you buy out your current lease, lease something else, or start shopping with other dealers, your credit affects the rate you’re ultimately offered.

That’s the one factor you can help before your lease ends. Kikoff’s Credit Account reports your on-time payments to all three credit bureaus, building the payment history lenders weigh most heavily. No hard credit check required.