# Financing a Lease Buyout Canonical URL: https://fundmyequipment.com/learn/lease-buyout-financing/ Last modified: 2026-05-29T19:39:17+00:00 Type: efin_guide ## Summary Financing a Lease Buyout. Comprehensive guide. ## Content End-of-lease buyouts let you keep equipment you have been operating instead of returning it. Whether the buyout makes financial sense depends on your lease structure, the equipment's market value, and what you would pay to replace it. Three lease structures, three buyout paths $1 buyout lease: No real buyout decision. At end of term, you pay $1 and take title. This is functionally a loan with a tax-treatment difference. FMV (fair market value) lease: At end of term, you pay the equipment's then-current market value to take title. The lessor sets the FMV based on appraisal, comparable sales, or a pre-defined formula. FMVs typically run 10% to 25% of original cost for equipment with 36 to 60 month terms. TRAC lease: The residual was negotiated upfront. Your buyout amount is fixed in the lease agreement, not calculated at end of term. TRAC leases are common in trucking. When to finance the buyout FMV buyouts on heavy equipment can run $20,000 to $200,000 or more. Most operators do not have that cash sitting idle. Financing the buyout converts it into a manageable monthly payment. You finance a buyout when: The equipment still has 3+ years of productive life remaining The buyout price is at or below replacement cost minus what you would lose on time-to-deliver You have built operating systems and crew training around this specific machine The cost of capital on financing is lower than the cost of returning and re-acquiring How buyout financing works Buyout financing is essentially a refinance. A lender pays the lessor for the buyout amount, takes title, and lends to you on a new term. Terms typically range from 24 to 60 months. Rates run slightly higher than new-equipment loans because the asset is used and has known wear. The lender will: Quote the buyout based on a copy of your lease agreement and end-of-term statement Run credit and underwriting like a standard equipment loan Pay the lessor directly at closing Receive title in their name, with your name as obligor Funding usually completes 1 to 2 weeks before lease end. Start the process 30 to 45 days before your lease termination date. Buy or return: the math Pull these numbers before deciding: ItemEstimate Buyout price from lessorQuoted on end-of-term statement Cost to replace with comparable used unitAuction site comps or dealer quote Cost to replace with newManufacturer or dealer quote Downtime if you switch (revenue lost)Days x daily revenue contribution Cost to finance the buyoutUse our payment calculator Cost to finance the replacementSame calculator with new price If buyout-plus-financing is less than replacement-plus-financing-plus-downtime, the math favors buying out. Watch for these traps Lessor inflates the FMV. Some lessors quote FMV at the high end of comparable sales, betting you will pay rather than coordinate a return. Get an independent valuation if the quote feels high. Three sources work: auction comps from Ritchie Bros or IronPlanet, a dealer trade-in quote, and an appraisal from a certified equipment appraiser. Return-condition disputes. If you return, the lessor inspects the equipment and bills you for excess wear, missing components, or hours over the contracted limit. Disputes often exceed the cost difference between buyout and return. Document equipment condition with photos and video before delivery. Buyout deadline auto-rolls. Some FMV leases auto-renew month-to-month if you do not notify intent to buy or return by a specific date (often 60 to 90 days before end). Calendar this date the day you sign the lease. Tax considerations When you exercise an FMV buyout, the equipment moves from operating lease (expensed) to owned asset (capitalized and depreciated). The buyout cost becomes the basis for depreciation. Section 179 can apply to the buyout cost in the year you take title, subject to annual limits. Talk to your accountant before exercising the buyout. What to do today Find your lease agreement and locate the buyout date and notification deadline. Request an FMV quote from the lessor 60 days out. Get an independent market valuation. Run the buy-vs-return math. If buying, apply for buyout financing 30 to 45 days before lease end.