Are you stuck in a lease that doesn’t quite work for you? Or maybe you’re tired of driving the same vehicle and would prefer to swap out your current leased ride for something else? The good news is you may have options if you refinance your lease. Here’s how it works and how to move forward if you decide it’s a viable option for you.
What is a Vehicle Lease?
A vehicle lease is an arrangement that permits you to drive a vehicle belonging to the lessor (or leasing company /dealership) for a set period of time. You’ll make monthly payments to rent the car and are obligated to adhere to the mileage limits, keep the vehicle in good condition and meet any other terms and conditions of the lease agreement.
Can You Negotiate a Car Lease After Signing?
You may be in luck if you recently signed on the dotted line for a car lease but want to renegotiate the terms. But this is only for a short period as lease terms are final. So, that break in payments that you receive if you’re experiencing financial hardship doesn’t mean you’re off the hook for those amounts.
However, you may be able to refinance your lease to get a monthly payment or terms that work better for your financial situation.
Is It Possible to Refinance Your Lease?
Yes, it is possible to refinance your lease. Furthermore, it could make financial sense to do so if:
- You’d prefer to keep the vehicle after the lease contract expires instead of entering into a new lease agreement.
- The resale value of the vehicle exceeds the buyout price.
- You plan to keep the vehicle and would prefer to end the lease agreement early and start making auto loan payments instead.
- You have the income and credit rating to qualify for favorable financing terms on an auto loan.
What Happens When You Refinance Your Lease?
When you refinance your car lease, you take out an auto loan to purchase the vehicle from the lessor. Upon approval, you retain possession of the vehicle and make monthly installment payments for a set period instead of lease payments. The vehicle is yours to keep once the auto loan is paid in full.
This process is known as a lease buyout, and there are several reputable lenders who offer to finance if you’d like to refinance your lease.
Why Consider Refinancing Your Car Lease?
Refinancing at the end of the lease allows you to keep your vehicle. Some drivers grow an attachment to their leased vehicle and want to hold onto it. Refinancing your car lease also starts the path of no more car payments. You’ll have to contend with monthly car loan payments for a while, but you’ll eventually own the vehicle debt-free. It’s a good idea that can save you money in the long run.
Refinancing your car lease may also be a good option if your credit score has improved since you got the lease. A higher credit score will result in a lower APR on your auto loan.
Benefits of Refinancing a Car Lease
These are some of the advantages to keep in mind if you want to refinance a car lease.
Lower Monthly Payments
You can end up with lower monthly payments if you opt for a longer term. You’ll also have some of the car paid off through the lease program. Borrowers with excellent credit can qualify for a better interest rate, which will further reduce the monthly payments.
Improved Interest Rates
You might get a more favorable annual percentage rate if you refinance your vehicle. A higher credit score, a lower debt-to-income ratio, and any positive changes from the Federal Reserve’s interest rate policy can all improve the rate you receive on a new auto loan.
Opportunities for New Loan Terms
A lease buyout loan can come with a longer term that minimizes your monthly payments. It’s also possible to get a loan for your new vehicle that has fewer fees than your current lease. You can compare rates and terms from various financial institutions and online lenders to find the lowest rates for your leased car.
Potential Drawbacks of Refinancing a Car Lease
While refinancing a car lease has several advantages, it’s important to consider the disadvantages before committing to the process.
Early Termination Fees
Many lessors have additional fees that apply if you want to get out of the lease early. While those extra costs may be worth the effort of getting a refinance, high fees can dissuade people from refinancing, especially if the end of your lease is in a few months.
Depreciation Costs
Your vehicle has lost value since your lease started. You’ll likely have to contend with gap insurance while your car’s value is higher than the loan amount. You can put down some cash to minimize depreciation costs, but it is a disadvantage to keep in mind.
Potential Negative Equity
Even though your vehicle has already endured some depreciation, its market value will get worse in the years ahead. While the rate of depreciation gradually gets lower each year, your car continues to lose value, which can prolong your gap insurance.
How to Refinance a Car Lease
Are you thinking about keeping your current car and want to someday stop making monthly lease and auto loan payments? Here’s how you can refinance your car lease.
Eligibility
Lessees should check the minimum credit score requirement for each lender to determine which auto loans they can receive. You can still get an auto loan even if you don’t have good credit, but you will likely end up with a higher interest rate.
Documents Required
Lenders outline which documents you need to complete the refinancing process. Here’s what you can expect to provide:
- Proof of address
- ID
- Social Security Number
- Vehicle information
- Proof of insurance
Step-by-Step Process
The refinancing process consists of a few steps. This layout can make refinancing your lease smoother.
- Step 1: Assess your financial situation and credit profile
- Step 2: Gather the necessary documents
- Step 3: Compare rates and terms from various lenders
- Step 4: Apply for auto refinance loans and decide on the right offer
What are Your Options After Your Lease Ends?
Transfer the Lease
If permitted by the lessor, you can transfer the lease to another person. However, you may incur a transfer fee.
Buy the Car
You can use an online platform to execute an auto lease purchase with ease. Interest rates on these loan products are typically lower and are readily available through credit unions and banks.
Plus, you can purchase other essential coverages, like an extended auto warranty and guaranteed asset protection (GAP) insurance, and roll the fees into your new auto loan. And you’ll get personalized service through the lending process to ensure your needs are met and your monthly payments work for your budget.
Return and Lease Again
You also have the option to return the vehicle to the dealership and enter into a new lease agreement with another ride. In some instances, you can avoid the standard termination fee by leasing another vehicle with the same dealership.
Lease Pull-ahead
Are you looking to get out of your current lease early to try out another ride? If the dealer offers a lease pull-ahead option, you could get the luxury of entering into a new lease without having to pay the termination fee or monthly payments remaining on your existing lease.
Dealership Buyout
If there’s equity in the vehicle you’re leasing, some dealers will offer a buyout. It involves receiving a cash offer from a dealership and, if you accept, allowing the dealer to remit payment for your outstanding balance on the lease agreement to the lessor (which could be the dealership you’re leasing from or another dealership). You’ll also get a check for any equity you had in the vehicle if there’s any.
FAQs About Refinancing a Car Lease
You can refinance a car lease right away. You’ll have to buy the leased vehicle outright with the auto loan.
Refinancing a car lease can be worth it as a refinance can get you out of debt sooner. You’ll eventually own your vehicle outright, but you should consider the early termination fee from your lease and the lender’s origination fee. You should also compare your loan’s APR with other choices.
Your original lease gets bought out. You won’t have to worry about making additional lease payments once the refinance is finalized.
