Why Should You Refinance Your Car Lease?

Refinancing your lease has a number of benefits. It can lower your monthly payments and reduce the amount of interest you have to pay. However, refinancing a lease also has downsides. For example, you might have to pay expensive fees for terminating your lease early.

Before you decide to refinance your lease, here are a few things you should know.

What Is Car Lease Refinancing?

When you refinance a car lease, you buy the vehicle outright and use an auto loan to finance the purchase. You can use the new loan to lower your monthly payments, extend your repayment period, or lock in a lower interest rate.

It's important to know that refinancing a lease is different than refinancing an auto loan. When you refinance an auto loan, you swap one loan for another.

However, you aren't allowed to swap one lease for another. The only way to refinance a lease is to buy out the vehicle and take out an auto loan, which will have different terms.

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How Does Refinancing a Car Lease Work?

Refinancing involves buying your leased vehicle and financing the purchase with an auto loan.

The first step is to find out the payoff amount from your lease company. This is the amount of money you have to pay to buy the car. It also includes taxes and fees.

Next, you will want to shop around for financing options to help you afford the buyout price. You can get pre-approved by several lenders to see which one can offer you the most favorable loan terms.

The final step is to take out a loan and use the funds to purchase your leased vehicle. Your lease contract will end and you will become responsible for making your new auto loan payments.

Benefits of Car Lease Refinancing

The main advantage of refinancing your car lease is to change your payments or interest rate. For example, if you refinance and choose a longer-term auto loan, it will reduce your monthly payments.

Or, if you're able to qualify for a better interest rate, you won't have to pay as much money in interest over the lifetime of your loan.

Car lease refinancing can also help you avoid fees. For instance, if you racked up fees for damage or excess mileage during your lease period, you won't have to pay those fees if you decide to buy out the leased vehicle.

Drawbacks of Car Lease Refinancing

Refinancing an auto lease is not the right decision for everyone. It's important to consider the drawbacks if you're thinking about refinancing.

When you refinance, you are responsible for paying purchase fees, including sales tax and transfer costs from a lease buyout. Some leasing companies might also charge a termination fee, depending on when you buy out your leased vehicle.

If your credit score needs work, you might get stuck with a higher interest rate on your auto refinance loan. If you end up paying more each month to own your leased vehicle, refinancing won't provide any benefit.

How to Refinance a Car Lease: A Step-By-Step Walkthrough

Follow these steps to refinance your car lease:

1. Read Your Lease Agreement

The first step to refinancing your lease is to read your lease agreement. Not every lessor lets you purchase the car you're leasing. If a lease buyout option is available, review the contract's fine print to find out if the buyout process has additional fees.

2. Get Your Payoff Amount

Next, you need to figure out the lease payoff amount, which is based on the car's residual value. The residual value is the car's estimated value at the end of the lease, which is predetermined when you first signed your lease contract.

There might also be extra charges depending on when you buy your leased car. For example, if you do an early lease buyout, you might have to pay a contract termination fee.

But if you choose the lease-end buyout, you might only be responsible for paying the buyout price and sales tax. Contact your leasing company to confirm the expected payoff amount.