Right now, a certain type of conversation is taking place in dealership parking lots all over the nation, and it sounds very different from the conversations that took place five years ago when people were purchasing cars. A customer arrives in a three-year-old Honda Ridgeline whose lease is about to expire. Ten years ago, the dealer would have been excited to return the keys and sell the car on the used lot, but now he is hesitant. Looks at his screen. provides a buyout figure.
The client already knows that number and what Carvana is willing to pay because he looked it up on his phone during the drive. There is a $6,000 difference between them. That afternoon, the customer exercises the buyout, gives it to Carvana, and takes a different car home. This would have been a financial curiosity a few years ago. It has evolved into something more akin to a strategy in 2026, when new car prices are approaching $48,000 and used car loan rates are above 11%.
The economics underlying what some refer to as the “used car leasing loophole” are more complicated than they first appear. The finance company estimates the car’s “residual value” at the end of the lease when it is signed. The monthly payment includes that amount. Additionally, the buyout price that the lessee can pay to retain the vehicle includes it. In a typical market, no one pays much attention, residuals are set conservatively, and the car ends up roughly worth what was anticipated.
Residuals set three, four, and five years ago have proven to be wildly incorrect in the market we’ve had since 2021. In an interview with NBC News, Michelle Krebs of Cox Automotive stated bluntly, “Lease buyout prices were set three years ago, when they never thought used car prices would be this high.” What appeared to be a rounding error during the signing process now appears to be a truck-driving loophole. In many instances, literally.
One of the first recipients was Josh Frankel, a financial consultant in New York. The buyout value of his leased 2018 Jeep Compass was approximately $15,000. The same car was worth more than $18,000 on the used market. He called a used car wholesaler, who visited his home and gave him a check. Seattle developer Wes Grueninger bought out his 2019 Honda Ridgeline and sold it to Carvana right away, extracting about $8,000. These are not isolated incidents. The difference between buyout and resale is frequently a five-figure figure that is sitting there in the right zip code with the right car.
Interest rates are the reason this is more important now than it was two years ago. When a buyer enters a dealership in 2026 to finance a used car, they are confronted with annual percentage rates (APRs) that would have seemed excessive in 2019. Prime borrowers are withdrawing 10% or 9%. Rates in the 13% to 18% range are frequently offered to subprime borrowers, which comprise a sizable segment of the middle class in the United States following two years of credit score erosion.
The total cost of a $25,000 used car at 13% over 60 months is truly excruciating. The choice to finance the same car is no longer neutral. The entire household budget is altered. In light of this, it is not wise to take out $5,000 or $6,000 in equity from a lease buyout, money that could be used to pay off the next loan or purchase the next car outright. It’s protective.
This market is likely to change once more in the next eighteen months, so it’s important to keep an eye out for another wrinkle that’s developing in the background. Teslas, Ford Mach-Es, Chevy Bolts, and Hyundai Ioniq 5s are among the many leased EVs from the early EV boom that will begin to roll off leases later this year. The “EV leasing loophole,” a tax-credit arrangement that made leasing electric vehicles financially appealing even when purchasing them didn’t make sense, is what Axios has been monitoring.
The automobiles that profited from that agreement are set to enter the used market in quantities never seen in the sector before. The upcoming year may be exceptionally favorable for customers who have been waiting for a more sensible entry point into an EV. It will be less generous to lessors who set residuals at EV prices prior to the collapse.
All of this does not imply that leasing is now a wise choice. For years, Dave Ramsey, Money With Katie, and the majority of mainstream personal finance writers have maintained that leasing a car is essentially renting a depreciating asset, and the lessor incorporates their profit margin into the payment.
On that score, the numbers haven’t really changed. The exit opportunity has been altered. An unintentional hedge is now included in a lease that was signed in 2020 or 2021, before anyone knew what used car prices were going to do. The people who are figuring out how to profit from that hedge are doing something that the industry never really meant to make possible.
The timing window is closing, which is the catch—and there’s always a catch. According to data from Cox Automotive, the share of new car leases decreased from about 30% in 2020 to about 19% in 2024. Financial firms have taken note.
New leases signed in 2024 and 2025 will have residuals that are much more in line with potential used prices. The Pariseaus from Atlanta learned the hard way that a seemingly profitable buyout can turn into a net loss once a $1,800 state tax is factored in. State tax treatment on buyout transactions varies greatly. Nicola Pariseau said, “It ended up being a fiasco,” to NBC. That serves as a helpful reminder. There is a real loophole. Sometimes the math doesn’t work.
It’s difficult to ignore how much this moment reveals about the direction that auto finance has taken over the last ten years. Loans are too expensive, cars are too expensive, and a significant portion of American families are making monthly payments that would have seemed concerning in any other decade.
A peculiar side door that rewards those who comprehend residual math more thoroughly than their dealer has become surprisingly significant in that setting. How soon the used EV wave occurs, how long interest rates remain high, and whether lessors complete adjusting their residuals to the new reality will determine whether it is still useful in a year. For the time being, however, there is a small but genuine community of drivers who arrive at their final lease appointment with a specific plan, a phone full of competing offers, and every intention of leaving with a check. The industry is still unsure of how to deal with them.
