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.

Key Takeaways

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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.

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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.

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Typically, you can get an auto loan for a lease buyout from banks, credit unions or online lenders.

How Do Auto Lease Buyout Loans Work?

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.

Pros and Cons of Buying Your Leased Car

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  • Familiarity: You already know the vehicle’s history.
  • Lower monthly payments: Leasing allows you to drive a new car at a lower cost. Plus, you can buy the car at the end of the lease period.
  • Preset price: The buyout price for the leased car is determined at the start of the lease, so you already know how much you’re expected to pay. It’s included in the agreement.
  • Earn money: You can make money by selling the car after you purchase it.
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  • Preset price: Since the buyout price is pre-determined, there may be limited room for negotiation.
  • Fee: The leasing company may charge a purchase option fee.
  • Tax: Depending on the state, buying out your leased car may require you to pay sales taxes.
  • High cost: Depending on the car, the cost of a lease buyout may be more than the car’s value.

When Does Buying Your Leased Car Make Sense?

A lease buyout isn’t always the best option, but there are situations when it makes sense.

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    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.

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    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.

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    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.

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    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.

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Buying a leased car is a commitment. Asking yourself some important questions can help you decide if it’s right for you.

  • Do I like this car?
  • Is this car still in good running condition?
  • Can I afford the maintenance costs?
  • Does the leasing company offer a purchase option?
  • How much is the buyout cost?
  • Do I still have remaining lease payments?
  • Can I take out a lease buyout loan if I can’t afford to pay upfront?

5 Steps to Get a Lease Buyout Loan

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.


Check your lease agreement

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.


Calculate the car’s current value

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.


Shop around for lenders

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.


Compare lease buyout loan options

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.


Finalize and close the loan

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.

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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.

  • Consider your timing.
    When you buy the leased car is crucial as it may change the amount you’ll pay. For instance, early buyout or purchasing before the expiration of the lease may lead to extra charges. Check the lease agreement to see if the leasing company allows early buyouts. If the fee is too high, you may be better off waiting for the lease to end.
  • Don’t make the first move.
    The leasing company will likely contact you first before your lease ends. They’ll discuss your options, including a buyout. Let them make the first move. Calling beforehand will let them know you’re interested, which may put you at a disadvantage when the time to negotiate comes.
  • Negotiate the purchase.
    Some companies may not allow negotiations for the buyout price, so it may be hard to haggle. Still, it won’t hurt to try. Ask the leasing company if you’re eligible for special offers, discounts and incentives.

FAQs About Auto Lease Buyout Loans

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 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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