Budget Beavers Lease Buyout Decision
Should you buy out your leased car or let it go? Here's the math for all three paths.
At the end of your lease, you have 3 choices:
Your Current Lease
If You Buy It Out
Compare Against
Three-Path Comparison
Return Cost You're Forgetting
Effective Buyout Cost
Cumulative Cost by Path — Over Your Hold Period
Lower cumulative cost = better deal. The line that ends lowest is the winning path.
The math behind your result
Every number is calculated from your inputs using standard Canadian lease and loan math. No AI guesses or market predictions — just your numbers run through the formulas below.
▶ How is this calculated?
1. Effective buyout cost (with provincial tax)
When you buy out a leased car, the province charges HST/GST/PST on the residual value. The buyout fee is separate and not usually taxed the same way. The formula:
effectiveBuyoutCost = residualValue + buyoutFee + (residualValue × taxRate) Example: residual $22,000, fee $350, Ontario HST 13%: tax = $22,000 × 0.13 = $2,860 total = $22,000 + $350 + $2,860 = $25,210
2. Immediate equity
immediateEquity = currentMarketValue − effectiveBuyoutCost Positive equity → car is worth MORE than you'd pay to buy it. You can buy it out and: a) Keep driving at a discount vs buying the same car elsewhere b) Buy it out and sell it, pocketing the difference (minus selling costs)
3. Buyout loan payment (APR/12 monthly compounding)
Car loans use APR/12 monthly compounding — NOT the semi-annual compounding that applies to Canadian mortgages under the Interest Act.
r = annualRate / 12 PMT = principal × r × (1+r)^n / ((1+r)^n - 1) Example: $25,210 at 6.9% / 60 months: r = 0.069 / 12 = 0.00575 PMT ≈ $497/month
4. Three-path comparison (total cost over hold period)
Path A (Buyout + hold): = loanPayment × min(loanTerm, holdMonths) + buyoutMonthlyRunning × holdMonths Path B (Return + new lease): = dispositionFee + excessKmCharges + remainingLeasePmts × remainingMonths + newLeaseMonthly × min(newLeaseTerm, holdMonths) + newLeaseMonthlyRunning × holdMonths Path C (Return + buy used): = dispositionFee + excessKmCharges + remainingLeasePmts × remainingMonths + usedCarLoanPayment × min(usedLoanTerm, holdMonths) + runningCosts × holdMonths
About the Lease Buyout Decision Tool
How manufacturers set residual values — and why it matters
When you sign a lease, the manufacturer's finance arm sets the residual value — what the car will be "worth" at the end of the lease term. This number is a strategic decision, not simply a market prediction. When manufacturers want to get the car back (for certified pre-owned resale, fleet management, or model refresh purposes), they set the residual above market value — making the buyout expensive and pushing lessees to return. When they want to move cars and incentivize buyouts, they set residuals low, creating positive equity for the lessee.
From 2021–2024, used car prices in Canada surged 20–40% due to supply chain disruptions and limited new inventory. Many lessees found their residual values set in 2019–2021 were significantly below market — creating unusually large positive-equity opportunities. This trend has moderated but not fully reversed.
The "equity trade" strategy
When your car's market value exceeds the effective buyout cost (residual + tax + fee), you have an option that most lessees don't realize exists: buy the car out and immediately sell it privately. The process:
- Buy out the car at the residual + fees + tax (your effective buyout cost)
- List it on AutoTrader or sell privately at market value
- Pocket the difference, minus any selling costs (registration transfer, listing fees, etc.)
This is entirely legal and not unusual. The main consideration: you'll need bridge financing (a short-term loan) to buy the car out before selling it, unless you have cash available. Some buyers will want a PPSA search before purchasing from you (see below).
PPSA lien search — always recommended
When you buy out a leased car, the leasing company (typically the manufacturer's finance arm) holds a lien on the vehicle under the Personal Property Security Act (PPSA). This lien is discharged when you buy out the car and the leasing company receives payment. Before completing a buyout, confirm the lien discharge process with your dealer — in most cases the dealer handles this, but if you're doing a private sale of the bought-out car, potential buyers will want a PPSA search to confirm the lien is clear.
PPSA searches can be done online through your provincial government (e.g., ServiceOntario in Ontario, ICBC Vehicle History Report in BC). Cost is typically $10–$20 per search.
Quebec-specific tax treatment
Quebec's tax situation on lease buyouts is more complex than other provinces. The Quebec Sales Tax (QST) is calculated on the base amount plus the GST — a "tax on tax" effect. The effective combined rate is 14.975% (5% GST + 9.975% QST on the GST-included base). This is higher than Ontario's 13% HST on the same purchase. If you're in Quebec and the buyout is close to the market value breakeven, the higher tax rate shifts the math slightly against the buyout.
When the buyout is usually a good deal
Several conditions strongly favour buying out your lease:
- Positive equity — market value exceeds effective buyout cost
- High new car prices — if new cars are expensive due to inventory shortages or inflation, your locked-in residual looks attractive by comparison
- Long planned hold — owning a paid-off car for years 3–7 is much cheaper than perpetual lease payments
- High-mileage users — leases penalize excess km; owners have no such constraint
- Reliable vehicle — if the car has a strong reliability record (Toyota, Honda, Mazda), ownership risk is lower
When returning is usually better
- Negative equity + expensive running costs — the car costs more to run than a newer, more efficient alternative
- Technology wants — if new safety features or EV technology matter to you
- Short hold horizon — if you'll want to switch cars again in 1–2 years, ownership overhead isn't worth it
- High residual relative to market — manufacturers' pricing pressure to return the car is working as designed
Disposition fee — the often-forgotten cost
Many lessees are surprised by the disposition fee charged when returning a car. At $300–$500, it's a meaningful cost that should factor into your decision. Most manufacturers waive the disposition fee if you immediately lease another vehicle from them — which is exactly why they charge it. If you're planning to stay with the same brand, confirm the waiver in writing before assuming it applies.
Sources and references
Financial Consumer Agency of Canada — Understanding Car Leases (fcac-acfc.gc.ca). Provincial PPSA registries for lien searches. AutoTrader Canada for market value comparisons. Ratehub Canada for current car loan rates. Canadian Black Book for residual value benchmarks.
Related calculators
- Car Financing vs Lease vs Cash — Full true cost comparison for your next car purchase decision.
- True Cost of Your Car — Depreciation, insurance, fuel, and maintenance — the real monthly cost of ownership.
- Underwater Car Loan Timeline — If you financed instead of leased, find out if you're underwater and when you break even.
- Fix or Scrap Calculator — If your bought-out car needs repairs, find out if fixing it is worth it.
Not financial advice. This calculator provides estimates for informational and educational purposes only. Car values fluctuate. Tax rates change. Lease terms vary by contract. Always verify your specific lease contract terms and consult a licensed financial advisor or automotive accountant before making major vehicle decisions. All calculations run in your browser; no data is transmitted to any server.