What Is a Lease Buyout Loan?
A lease buyout loan allows you to purchase your leased vehicle instead of returning it. This not only provides a reliable way to get around but also offers the potential for future financial gains. It enables you to own a valued possession and take control of your automotive destiny.
Top Lease Buyout Loan Providers
Average Lease Buyout Loan Interest Rates
Lease buyout loans are a suitable choice for drivers who wish to keep their leased car after the lease term expires. It is crucial to search for the best interest rates as they can differ based on various factors like your credit score, the lender, and the type of vehicle you intend to purchase.
Average Rates by Credit Score:
- Excellent credit (780+): 4.67%
- Good credit (670-779): 5.24%
- Average credit (580-669): 5.93%
- Below average credit (500-579): 6.59%
Average Rates by Loan Term:
- 24 months: 4.67%
- 36 months: 5.24%
- 48 months: 5.93%
- 60 months: 5.99%
- 72 months: 6.59%
- 84 months: 6.59%
*Rates and requirements are subject to change
How do Lease Buyout Loans Work?
Generally, your leasing company will contact you a few months before your lease is up. If you want to keep your vehicle at the end of the lease, you have a few options. You can either:
- Return the vehicle as agreed
- Extend your current lease
- Sign up for a new lease
- Return the vehicle to the dealership
You’ll need to check your vehicle’s paperwork to see if a lease buyout is an option for you. If it is, and you still want to purchase your car, you have one of two options:
- Buy the car with cash
- Apply for a lease buyout loan
You can get a lease buyout loan from online lenders, credit unions, banks, and other finance companies. Be sure to compare different lenders to find the best offer for you.
After you apply and are approved for a loan, you’ll be able to pay off the current lease. You’ll then need to start making payments on the new loan until it’s paid in full.
Like most auto loans, lease buyout loans come with their own terms, rates, requirements, and restrictions. Typically, the loan amount will be based on the vehicle’s residual or predicted value at the end of the current lease term. This could result in a higher buyout price than the vehicle’s current market value.
Can you Buy Out a Car Lease Early?
Most lease agreements have a buyout option that lets you buy the car at the end of the lease term or even earlier. If you choose to buy out the lease early, you will be liable to pay the remaining lease payments and fees, along with the car's residual value.
Can You Refinance a Car Lease?
After the lease term is up, you have the option to refinance a car lease through a lease buyout. This means that you will become the owner of the car. You can choose to do this either with the dealership you leased from or through private lenders, who may offer more favorable rates and terms.
How to Get a Lease Buyout Loan
Here are the basic steps to getting a lease buyout loan:
- Review your documents: Before your leasing company contacts you, read through your current leasing agreement. It will include your vehicle’s residual value — that is, the estimated value of the vehicle when your lease expires.
- Make sure a lease buyout is an option: Your leasing agreement should also indicate whether you can buyout your car. If you can, inform your leasing company that you intend to use a loan to purchase the vehicle.
- Check your vehicle’s current market value: The market value might be different from the residual value. If it is, you might be able to use this to negotiate down your car’s purchase price. Check with places like Edmunds or Kelley Blue Book for an estimate of your car’s value.
- Compare lease buyout loan offers: Shop for different lenders to see if they offer this type of financing — and at what rates and terms.
- Apply for a loan: Complete the loan application and provide any required documents. This might include your driver’s license, credit statement, and auto insurance card. It may also include information about the vehicle, such as its residual value, current mileage, year, make, model, and Vehicle Identification Number (VIN).
- Sign the loan offer: If possible, negotiate for a better deal with the leasing company. Once you’ve agreed upon the terms, sign the paperwork or contract.
Lease Buyout Loans: What to Consider
Before you get a lease buyout loan, here are a few things you should consider:
- Monthly payments: A lease buyout loan might come with higher monthly payments than the original lease. This is especially true if the interest rate is higher, or if the vehicle’s value has increased.
- Cost-effectiveness: Owning a vehicle outright can be more cost-effective than leasing one out. But you will need to keep the same car for a while to make it worthwhile.
- Wear and tear limitations: Many automobile leases have additional fees for excessive damages or wear and tear. If your vehicle falls in this category, it might be worth purchasing it to avoid these charges.
- Excess miles: Some lease contracts have a maximum annual mileage limit. If your leased vehicle exceeds that limit, you might end up having to pay for the extra mileage. With a buyout loan, you can avoid this expense.
- Negotiable price: You may be able to negotiate the lease buyout for a better deal. This could potentially save you money.
- Building credit: As long as you make on-time payments on your loan, you can use it to improve your credit over time.
There are also a few drawbacks to buying out a car lease, including:
- Vehicle depreciation: When you purchase a vehicle after the lease ends, you’ll have to pay the remaining amount. The vehicle will also be considered “used” and may have decreased value. This means you might not get as much from it if you sell it later.
- Additional costs or fees: A lease buyout loan comes with certain fees, such as interest charges. You may also need to pay a penalty for ending your lease agreement early. Calculate the potential costs and savings of a buyout to see if it’s a good idea.
Lease Buyout Loans: Pros and Cons
Before getting a lease buyout loan, consider the pros and cons.
Lease Buyout Loans Pros
- Could save you money in the long run
- Get to keep your current vehicle
- Can help you avoid charges for things like excess wear and tear
- On-time payments could help you build credit
Lease Buyout Loans Cons
- The vehicle’s value will likely decrease
- You won’t be able to exchange your current vehicle when the lease runs out easily
- More commitment to your current car
- Not all leasing agreements allow for lease buyout loans
Should You Get a Lease Buyout Loan?
A lease buyout loan might be a good option if you:
- Like your vehicle and plan to keep it for the foreseeable future
- Can negotiate a good deal on your car’s predicted residual value
- Would have to pay other fees — like excess mileage or wear and tear — otherwise
- No longer need the flexibility of switching out vehicles and want to save money in the long run
When shopping around for a lease buyout loan, keep an eye out for eligibility requirements. This typically includes:
- Valid driver’s license and auto insurance card
- Steady income showing you can afford monthly payments
- Fair credit or better (580+)
The Bottom Line
A lease buyout loan offers a compelling solution for individuals looking to retain their leased vehicle or potentially profit from its resale. This financing option grants you the ability to purchase your car rather than return it at lease-end. However, it's crucial to thoroughly evaluate factors such as cost-effectiveness, wear and tear allowances, excess mileage, and negotiable pricing. Be sure to diligently review your contractual documents, assess your vehicle's current market value, compare offerings from various lenders, and initiate the loan application process. Keep in mind that lease buyout loans are subject to their own set of terms, rates, prerequisites, and limitations, with the loan amount contingent on the projected value of the vehicle at the lease term's conclusion.
All in all, a lease buyout loan presents an excellent option for those planning to retain their vehicle long-term, secure favorable terms, or circumvent additional fees.