Can a Car Lease Be Refinanced? Here's What To Know

car on the road after being refinanced
Can a Car Lease Be Refinanced?Douglas Sacha - Getty Images

It's common to wonder, can a car lease be refinanced? The answer is that leases don't have this option on their own. Instead, you can buy the vehicle outright with a loan to lower your monthly payment with minimal interest. Car leases are different from loans. When you lease a car, you sign a contract and pay a monthly amount to keep and use the vehicle for a specific time under certain terms and conditions. When you take out a car loan, a bank or other lender pays for the vehicle, and you pay them back with interest.

One benefit of a car lease is you can negotiate the terms before you sign the agreement. Since a lease includes various rules, such as monthly payments, mileage limits, and fees due at the end, reviewing the contract can help you negotiate with the dealership to ensure it meets your financial situation and lifestyle. This step can ensure you make your monthly payments without worrying about refinancing. If you want to end your lease early, you can use an early lease pull-ahead or wait until the end of your contract to start the buyout, which acts like refinancing your car lease.

Are you interested in refinancing your car lease? Compare auto lenders below to refinance.

How to End Your Car Lease

Since there are no refinancing options for car leases without buying the vehicle, you can end your lease early or wait until the term ends and negotiate a new agreement. There are four options available, which you can use before or at the end of the lease.

  • Return the leased car, pay end-of-lease fees, and go to a new dealership. Once your lease contract ends, you can return the car to the original dealership where you leased it and pay any associated end-of-lease-term fees. At this point, if you wish, you're free to go to another dealership to get a new lease, buy a used vehicle, or purchase a new one with a loan.

  • Lease a new vehicle from the same dealership. At the end of your lease, return the car, pay any fees, and lease a brand-new vehicle with different rates.

  • Extend your existing lease. Some dealerships may extend the length of your existing lease agreement or combine it with another one.

  • Buy out the existing lease. With this choice, you'll purchase the vehicle you leased with a loan and make payments on that loan.

If you love the car you leased, you can speak to a lender to see what your options are for buying the vehicle and making loan payments.

When Is Refinancing through a Lease Buyout Worth It?

If you have an automobile loan, you may want to consider refinancing options to lower your monthly payments. If you want to keep your leased vehicle, the buyout option may be worthwhile under the following conditions:

1. The buyout price is less than the market value

The car's market value is what it's worth on the open market if you decide to sell it. The lending company or dealership will use its fair market value calculator to determine that amount. If the buyout price is less than the car's market value, buying out the vehicle with an auto loan may save you money.

2. You incurred fees for excess mileage, wear, or changes to the vehicle

In your original lease agreement, the leasing company will state the allowed mileage for the term. When you return the car, they inspect it and assess its wear and mileage. If you surpass your mileage limit or bring the car back with damage or other issues, they can charge fees, which may add up to thousands of dollars.

If you've made any modifications to your car, such as adding a new stereo, putting in a lift kit, or changing the wheels, the leasing company can also charge fees and even refuse to accept it. Choosing the buyout option is appropriate in these scenarios to reduce the amount you owe.

3. Buying the leased car is cheaper than a new one due to depreciation

Even though the manufacturer's warranty covers most major repairs and some maintenance services, every vehicle requires general care. If you can buy out your lease and get a loan with a low-interest rate and monthly payment, you can use the money you save to make repairs. With this plan, you can create a regular maintenance schedule and know that within several years, the payments will end.

When Is a Car Lease Refinance through a Buyout Not Worth It?

There are several reasons why a car lease refinance may not be worth it, including the following:

1. You want to get a different car frequently

If you love the idea of driving cars of various makes and models rather than owning one particular car, buying out the lease to get a loan may not be worth it. If you are OK with making monthly payments and accepting the lease terms, it makes more sense to continue doing what you enjoy.

2. You don't have the time to research a lease buyout

It generally takes time and patience to buy your lease with a loan. You'll want to get quotes from various lenders and compare them. Then it's time to consider the buyout amount. If the market value is lower than the buyout price, it's not worth refinancing the lease. It's often less of a hassle to just keep on leasing a new vehicle rather than spending time working with lenders and doing hours of research to learn tips and tricks to master the lease buyout process.

3. The buyout price is higher than you planned

Even though there's no sales tax when you lease a car, you often pay for the car's depreciation rather than the vehicle itself. If you get a loan through the lease buyout, you'll pay sales tax and the remaining portion of the vehicle's purchase price. In addition, just because you want a loan with lower monthly payments doesn't mean lenders will offer lower interest rates. This is especially true if the buyout amount is higher than the market value or you have a low credit score. You may also pay transaction fees, dealership fees, and other costs, which may make buying out the lease less attractive.

How to Refinance a Car Lease with a Buyout

Once you've decided that you want to go ahead with a lease buyout, you'll want to be prepared to help make the transaction go smoothly including:

1. Understanding your lease agreement

Before you consider a lease buyout, read your lease agreement to make sure the leasing company will let you buy the car before or at the end of the lease term. If there is a buyout clause, research the fees and costs that go with it. Some automakers don't have a lease buyout clause, so be sure to check if that is an option.

2. Calculating your payoff amount

Ask the dealership or the lending company what the payoff amount for the leased car is. You want accurate figures for all fees, such as a lease termination charge, dealership fee, transfer costs, and sales tax. Keep in mind that once you get your new loan or refinance an existing car loan, you can negotiate the terms later, unlike a lease.

3. Making sure you can afford the loan payments

Once you know the payoff amount and the fees connected to the loan origination, use a car loan calculator to make sure you can afford the payments, repairs, and maintenance costs for the car. If your credit score is good, around 700, most lenders will give you a better interest rate than someone with lower credit.

4. Assess lenders for the best rates and apply for the auto loan

Once you decide to refinance your car lease, gather your financial information and determine how the new payment will fit into your budget. Then it's time to start shopping for lenders. Don't settle on the first quote you receive, but get several quotes from a variety of lenders to find an affordable auto loan. Get the quotes within 14 days to reduce the impact on your credit score. Once you choose the lender best suited to your needs, start the application process, and once accepted, begin paying monthly payments toward the ownership of your new car.

Choosing to buy out your car lease with a loan is a personal decision. If you meet the lender's qualifications, feel strongly about owning the leased car, and are looking forward to eliminating leasing fees, then a lease buyout may be a good option. Just remember that you can't actually refinance a car lease, but you can negotiate with a lender for a buyout loan suitable for your budget and lifestyle. With your buyout loan, you'll be able to own the leased car you've fallen in love with.

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