MoneyLife

Is a Lease Buyout Loan the Best Way To Get Out of a Lease?

By Alison Kimberly
lease buyout loan

If you’ve fallen in love with a car that you are leasing, what should you do? Since leased cars are typically new and can cost upwards of $20,000 or more, a lease buyout loan can help you own the car you’ve been leasing all this time. While a lease buyout loan is one option, is it the best alternative?

Read on to find more about what a lease buyout is, how they work, and additional lease buyout loan options!

What is a lease buyout loan?

A lease buyout loan is a financing option that makes it possible to purchase a leased car, often at a set price. The original lease contract will state whether you have the option to buy the car in the first place, along with the terms of doing so. Some leases specify a predetermined and non-negotiable price while others will charge current market rates.

You can get a lease buyout loan from banks, credit unions, online lenders, and other financing entities. As with other types of loans, you will be able to get a lower interest rate on a lease buyout loan if you have a higher credit score. Don’t be afraid to shop around in search of the best interest rate and terms for your situation. 

Things to know about a lease buyout loan

A lease buyout loan gives you access to the funds required to purchase your leased vehicle. Suppose you have been leasing a car for two years, and the residual value of the car, which was set by the leasing company, is $15,000. You can apply for a lease buyout loan to purchase the car. 

Interest rates on lease buyout loans can be as low as 2% or as high as 18%, and the terms can range anywhere from 12 months to 5 years or more. It is important to search for different options to get the most favorable terms. 

How does a lease buyout loan work? 

The price of a lease buyout will be based on the estimated value of the leased car, plus taxes and title fees that are required to transfer the car to your name. The estimated value of the leased car is referred to as the vehicle’s residual value, and it is usually determined at the beginning of the lease. The residual value of the car could be higher than the car’s actual value, which is why it’s important to do your research. 

You can apply for a lease buyout loan with a bank, through a credit union, or from direct lenders if you have a credit score above 660. With many lease buyout loans, you will not be required to make a down payment because you will have already invested a significant amount of money into the car. 

5 things to consider with a lease buyout loan

A lease buyout loan can make sense if you’ve become accustomed to driving a certain car and you don’t want to trade it in for a different vehicle. However, a lease buyout is not always the best financial choice. Here are five things to watch out for when considering a lease buyout loan. 

1. Be mindful of the interest rates being higher

Depending on your credit score, you might be offered a lease buyout loan at interest rates as high as 18% to 20% in some cases. This is on par with standard credit card rates and the interest rate alone will add a significant amount of money to the total car cost. 

Lease buyout loans that are directly secured through financial institutions linked to leasing companies also tend to come with higher interest rates. Plus, lease buyout loans are notoriously higher than new or used car loans as is.

Shop around and carefully consider whether the lease buyout is a good financial decision for you. Keep an eye out for the best interest rates available. 

2. Check the mechanical history of the car

If the car has a history of breakdowns, wear, and tear, or other issues, its value may be lower than the estimated value at the time the lease was originally signed. This is known as the depreciation of the residual value, and it is not often reflected by the lease buyout contract. If you are aware of any mechanical issues, consider negotiating a lower price or simply walk away. 

3. Check the current value of the car

Lease buyout loan rates are often too high for a lease buyout to be your best option. Research the make, model and mileage of your car to determine the vehicle’s current market value. If the car is not worth more than the purchase option price, then it is often wiser to purchase a new or used car of a similar make and model rather than agreeing to a lease buyout. 

4. Check for excess mileage charges or excess wear-and-tear charges

If you exceed the total mileage limit in your lease contract, you can be faced with excess charges that could be avoided with a lease buyout. Likewise, if the car has excessive wear-and-tear you might be able to obtain a better price in the lease buyout. 

5. Do the monthly payments make sense financially?

If you cannot comfortably afford the monthly payments for the lease buyout loan, or the payments will require excess savings in other areas of your life, it is usually not worth the lease buyout loan. 

Consider another vehicle that you can comfortably afford and put the money you save into a MoneyLion investment or safety net savings account to build long-term security. On the other hand, if you can afford the monthly payments of a lease buyout loan, consider trying these best practices to pay off an auto loan faster.

How to get a lease buyout loan

If you’ve considered the options and you’re ready to take out a lease buyout loan, here are some simple steps to get started! 

Check with the leasing company

The first step is to double-check your contract and confirm with the leasing company that a lease buyout is an option for you. Not all leases allow buyouts, and not every lease buyout comes with favorable terms. 

Ask for the details of the cost, estimated value, and any other financial elements of the lease buyout loan. Once you confirm that a lease buyout is the right choice for you and you know that it is an option in the first place, you can start shopping for a lease buyout loan.

Shop around for loan options

You can obtain a lease buyout loan from banks, credit unions, or financial companies. Many lenders will offer you a pre-approval option. Apply with several loan companies to gather the best possible rates for your financial situation. 

You can also apply for shorter loan times to pay off the loan faster. Or if you want to decrease your monthly payments, you might want to seek out a loan with longer loan periods instead. 

Select the best terms

Once you’ve been preapproved and researched the best offers, it is time to select the terms that suit you and your goals. This might be your target loan duration, the lowest interest rate, the loan without a required down payment, or some combination of these.

Close the loan and finish the lease buyout

Once you’ve been approved for the loan and selected the best terms, all you have to do is finalize the paperwork and prepare to transfer the title. The lender, the leasing company, and your state’s motor vehicle department can all guide you through this process. It is standard for the title to be in the lender’s name until you have paid off the lease buyout loan. 

An affordable way to buy a car

With a good credit score and loan pre-approval, a lease buyout loan could be the path to ownership of a top-class vehicle. If you need cash fast, MoneyLion’s same-day loan services are a safe and affordable way to access funds when you need them. 

These can be used to pay your monthly lease payout loan costs when you are short on cash, and they will help to ensure that you remain in good standing. Additionally, a MoneyLion Credit Builder Loan assist with credit improvement and increase your chances of a better car loan rate.

Make sure the price you are paying for the residual value is less than the vehicle’s current market value in order to obtain the best deal. Shop around for the best interest rates and terms out there.

Last but not least, apply for preapproval to prepare for the lease buyout. With some research and our insight into the process, you can secure the car you love for a low monthly loan payment!

FAQs

Can you negotiate lease buyout?

Yes, in most cases it is possible to negotiate a lease buyout based on the condition of the vehicle and the current market values. Unless your contract specifies a set price – or no lease buyout option – you can negotiate.

Is a lease buyout better than financing?

Not necessarily. It depends on the price of the lease buyout loan and the current market values compared to other financing options.

Do you get money back for unused miles on a lease?

No, you do not get credit for unused miles on a lease. However, if you purchased extra miles and did not use them, you might be eligible for a refund on the additional miles purchased.

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