When Can You Refinance a Lease? Find Out Now.

If you want to lower your monthly auto loan payment, refinancing can be a good solution. However, if you lease a vehicle, refinancing isn't usually an option. Lease terms are locked in at the moment you sign the contract, and unfortunately, there's nothing in a standard lease agreement that allows you to swap one lease for another.

But that doesn't mean you're locked into your lease for the entire contract period. For example, if your lease payment is higher than you're comfortable with, you have the option to purchase the vehicle and refinance it with a traditional auto loan. If you're thinking about refinancing your lease, here's what you need to know.

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When Is a Car Lease Refinance Worth It?

Technically, there's no way to refinance a car lease in the middle of the contract. You can't swap one lease agreement for another. The only way to refinance your lease is to purchase the leased vehicle and use an auto loan to pay it off.

If you take this option, you might have the opportunity to get an auto loan with a lower monthly payment than you were paying before. However, there's no way to refinance your lease during the contract without buying it.

Depending on you situation, buying out your lease and refinancing can be a good option. Here are some reasons to consider refinancing your lease:

The Market Is Hot

If the buyout price of your leased vehicle is lower than the current market value, refinancing could put you in a favorable equity situation. You could buy the vehicle with a new loan and keep it or sell it for a profit.

You Want Smaller Monthly Payments

When you refinance your lease with a longer-term loan, your payments will be smaller because they're stretched out over a longer period. However, you will pay more in interest if you choose a long-term refinancing loan.

Your Credit Score Went Up

If your credit score was in poor shape when you signed your lease agreement, refinancing can work out in your factor. When you buy your leased vehicle and refinance the loan, you might be able to qualify for a better interest rate, which can help you save money.

You Have to Pay Penalty Fees

You might want to consider refinancing your lease if you're facing penalty fees for damage or excess mileage. Buying the car and refinancing the loan will help you avoid these charges.

When Is It a Bad Idea to Refinance?

Refinancing a lease isn't the best idea for everyone. Here are some reasons to avoid refinancing:

The Buyout Price Exceeds the Market Value

If your leased vehicle's buyout price is higher than its market value, you shouldn't refinance. You don't want to pay more than you would if you purchased the same make and model off the dealership's lot. In this case, it will be cheaper to buy or lease another car.

You Don't Like the Car

Many people choose to lease a car solely for the benefit of returning it in a couple of years and getting a new one. However, if you don't like the vehicle and don't want to keep it for much longer, refinancing probably isn't the best strategy for you.

You Can't Afford the Maintenance

Another advantage of a lease is that the factory warranty protects the vehicle for the entire contract period. You don't usually have to pay for routine maintenance and repairs during that time.

But if you purchase your vehicle and refinance it, you may no longer have access to the warranty. And if you can't afford the cost of maintenance, purchasing the vehicle isn't the best financial decision.

How to Refinance an Auto Lease

When you refinance a lease, you purchase your leased vehicle and refinance with a new auto loan. Once you buy your car, you'll own the vehicle alongside any lien holders.