What Is a Buyout Price?

The Buyout Price, also known as the Residual Value or Purchase Option Price, is the predetermined amount specified in a car lease agreement that outlines the cost at which the lessee can purchase the leased vehicle at the end of the lease term. This price is established at the beginning of the lease and is a key factor in determining the financial implications of exercising the purchase option.

Explanation: The Buyout Price represents the agreed-upon value of the vehicle at the end of the lease, considering factors such as depreciation and market conditions. It provides the lessee with the option to transition from leasing to ownership by paying the specified amount to acquire full ownership rights of the vehicle.

Examples: Suppose you have been leasing a car for three years, and the original value of the vehicle was $30,000. The lease agreement includes a Buyout Price of $15,000 at the end of the lease term. When the lease matures, you have the choice to purchase the car for the predetermined Buyout Price.

If the market value of the car at the end of the lease term is $18,000, opting for the Buyout Price of $15,000 could be advantageous as it allows you to acquire the vehicle at a lower cost than its current market value. On the other hand, if the market value exceeds the Buyout Price, exercising the purchase option still makes financial sense as it provides a fixed and often favourable price for obtaining ownership.