Updated: October 3, 2024
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The end of the auto lease agreement means turning in the car for many drivers. But depending on your needs and preference, you may opt to extend the lease or get a new lease on a new vehicle.
If you want to keep the car for good, you can also purchase it. To do this, you may require financing. You can cover the cost out of pocket or take out a lease buyout loan. The latter is a good option if you don’t have enough cash to make a single payment.
A lease buyout loan is a financing option for those who decide to purchase the vehicle they’ve leased. The lessee pays off the loan amount plus interest for a certain period.
Buying your leased vehicle is best if you want to switch to long-term car use and avoid high turn-in fees. If the car’s value exceeds the buyout amount and the cost is within budget, purchasing the vehicle may be advantageous.
Typically, you can get an auto loan for a lease buyout from banks, credit unions or online lenders.
If you lease your car, you have different options after the car lease agreement ends. You can turn in the car, extend the lease, get a new lease for a different car or purchase the vehicle.
Depending on the leasing company, buying a car may not always be possible. You can review the paperwork first to find out if you can purchase the car once the lease ends.
If the company allows this option, your next step is determining how to finance the purchase. You can either pay out of pocket or take out an auto loan for the lease buyout from a bank, credit union or online lender.
Before applying for a lease buyout loan, find out the lender’s requirements. These may vary, but they usually include your personal information like address and Social Security number, credit score and history, driver’s license, proof of car insurance, employment information and current lease agreement.
The right loan amount will depend on your needs. The annual percentage rate and loan term also differ per lender.
It would help to calculate the lease buyout amount by considering certain factors, such as the amount you still owe on the lease (based on the monthly payment amount and remaining payments), the residual value stated in the agreement (estimated value of the car after the lease ends), the leasing company’s purchase option fee and the sales tax rate in your state.
A lease buyout isn’t always the best option, but there are situations when it makes sense.
The car’s value is higher than the buyout amount
One of the first things you need to do is determine the residual value of the car. This is the expected value of the vehicle at the end of the lease term. You can find this in the auto lease agreement and it’s typically expressed in amount or percentage. The residual value reflects depreciation. A high residual value means the car is expected to depreciate less over the lease period.
If the market value of the car is less than the buyout amount, purchasing it may be a good idea. On the other hand, it’s not a good deal if the buyout amount is more than the market value.
Avoiding high turn-in fees
Leasing a car comes with terms and conditions. The leasing company will charge penalties for wear and tear. Going beyond the mileage limit will also cost you. Depending on the extent of damage or excess miles, fines may cost you thousands of dollars.
In such cases, keeping the car and paying the buyout amount may be cheaper.
Switching to long-term car use
Leasing offers the convenience of having a vehicle you can use whenever you need it without the responsibility of being an owner. This is a great solution for many people, especially those planning to have a vehicle for short-term use only.
But if you end up jumping from one lease agreement to another, it may be better to purchase the leased car instead.
Owning a car is within your budget
Review your finances and see if you can afford to pay for the buyout price of the leased car. You should also consider all associated costs, including car maintenance and auto insurance.
If you like the leased car, check the retail price in the market. This will help you decide if the buyout price is a fair deal.
Buying a leased car is a commitment. Asking yourself some important questions can help you decide if it’s right for you.
To purchase your leased vehicle, you can start with the leasing agreement as it includes important details. If you decide to take out a car loan for your lease buyout, your next step is to find the right lender.
You can look at your lease agreement to find out if you have the option to buy the leased vehicle.
Some companies don’t allow lessees to purchase the car. Others may have specific rules, such as additional fees for an early buyout.
Determine the current market value of the car. Compare this with the residual value stated in the agreement. Make sure the buyout price isn’t more than the car is worth. Otherwise, you’ll only be taking out a loan for more than the car’s value.
You can find the current value of vehicles online. Various sites offer pricing guides for buyers. Another option is to take the car to a local dealership and ask for an estimate.
Various lenders offer auto loans for lease buyouts. Your leasing company may offer a purchase loan. But it’s best to check offers from other lenders. You can search among banks, credit unions and online lenders. Not all lenders accommodate lease buyouts.
You also need to meet lender requirements. Typically, these include personal information like your Social Security number, employment and income information and address. They may also ask for vehicle information. Additionally, you may need to meet credit requirements. In most cases, having bad credit will limit your choices.
Some lenders also offer pre-approval. This will let you know how much you can borrow, the interest rates and loan term.
Once you have multiple loan offers, the next step is to figure out which lender has the most favorable terms. Compare interest rates, monthly payments and loan terms.
Review your chosen loan offer. Read the fine print. Make sure you understand the details to avoid penalties.
You should also contact your leasing company to confirm the lease buyout process. If you’re using a lease buyout loan to finance your purchase, you’ll have to transfer the car title to your name from the leasing company. You may also need to add the lender as a lienholder.
A lease buyout loan doesn’t have to be permanent. You can always review the terms and refinance when lower interest rates are available or your credit score has improved.
There are other factors to consider when buying a leased car. Take into account the timing of your buyout. Check if the leasing company has a good offer. You may also negotiate terms to get a better deal.
Although a lease buyout loan can help you finance a car, it may not always be the best option. MoneyGeek answers some frequently asked questions to help you better understand how it works.
The credit score requirement is specific to lenders. You need to check with the lender if your credit score meets their requirement. Typically, having at least a good credit score will help you find better deals.
Yes, you may negotiate the lease buyout price. Some leasing companies may have a no-negotiation rule. However, you can still ask about discounts, special offers and incentives to lower the total cost.
You typically don’t get money back at the end of a car lease. You may, however, need to pay additional turn-in fees.
The process of getting a lease buyout loan depends on the lender.
Generally, your buyout agreement should include your name, address, vehicle description and buyout price. You also need to ensure that the car title is transferred from the leasing company to you.
No, a down payment isn’t required for a lease buyout loan if you have no missed lease payments. That said, a down payment can lower your monthly payments and interest charges.
Interest rates for lease buyout loans vary. Lenders consider the loan amount and term. Your credit score, the car’s residual value and its residual value will also affect the rates.
About Christopher Boston
Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.
Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.
The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.
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