Can You Refinance a Lease?
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If you have ever purchased a car or home with a loan, you might be familiar with the concept of refinancing. When you refinance something, you typically pay off your existing loan balance with an entirely new loan with more favorable terms, such as a lower interest rate. Doing this can save hundreds— if not thousands— in interest payments over the life of your loan.
Refinancing a car lease, however, is a little bit different. In this article, we’ll explain what it means to refinance a lease and what it means for you as a lessee.
What Is A Car Lease Refinance?
A car lease isn’t paid for with a loan, but you make monthly payments as outlined in your lease agreement.
To refinance, you’ll buy out the lease using loan financing. So instead of paying monthly payments to the dealership for simply being able to use the car, you’ll pay off a loan to own the vehicle.
FIND YOUR LEASE’S RESIDUAL VALUE
Did you know that your leased car may be worth more than you (or your dealership) thinks it’s worth? Learn how to calculate your lease’s residual value and how you can use it to your advantage.
When Should You Refinance Your Car Lease?
Refinancing your car lease can be helpful in many situations.
- You want smaller monthly payments: When you refinance with a loan with a longer term, your monthly payments will be smaller.
- You want to own the car sooner rather than later: Perhaps you want to own the vehicle outright sooner rather than later. You can refinance with a short loan term to make larger monthly payments and pay it off sooner.
- Your credit has improved: When you first signed your lease, your credit score might have been in poor shape, preventing you from getting a reasonable interest rate on financing. If you improve your credit score, you may decide that a loan is now the better option.
You might decide to do this at the end of your lease or somewhere in the middle. Just beware that if you buy out your lease early, you may face additional fees. It’s also important to know that taking out a loan and stretching out your payments can mean paying more interest throughout the loan.
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Other Options Aside From Refinancing
You likely have several other options if you don’t want to refinance your lease with a loan.
First, you can purchase the car outright with cash. Once you buy it out, it’ll be 100% yours. On the other hand, if you’d prefer to be done with the lease *and* the car, you can sell it. If your vehicle has positive equity— meaning it is worth more than the buyout price— you may even make a profit! Of course, selling the car would also mean purchasing it first. Unless you want to potentially be stuck with a vehicle you don’t want, it’s always a good idea to find a buyer before purchasing the lease.
Another potential option is to do a pull-ahead if you are close to the end of your current lease. Sometimes, when there are only a few months left on your current lease, the dealership will waive the last few months of your lease and let you begin a new lease a little bit early. This is done to lure you into another lease term rather than allowing the lease to end and going to another dealership for your next lease or to purchase a car.
Frequently Asked Questions
Q: What are the benefits of refinancing a car lease?
One of the main advantages of refinancing a car lease is that it helps you build equity in your leased vehicle. Plus, you’ll be able to avoid additional fees that can burn through your wallet, including maintenance fees, wear and tear costs, and cancellation fees.
Q: How soon can you refinance a car lease?
In general, all lease contracts have the buyout option as soon as you leave the car lot, provided that you have the cash in hand. Thus, you can refinance your car lease as soon as you want to – even as soon as you sign the contract, barring any provision against a buyback. Always check your lease contract for this information.
Q: What are the drawbacks of refinancing a car lease?
Since you become the car’s new owner after refinancing, you must shoulder all the post-purchase costs associated with the buyout. These fees may include termination fees ($300-$500), sales taxes (up to $1,000 and depending on the state you’re in), and potential high refinance APR if you don’t have a good credit score.
SELL YOUR LEASE FOR MAJOR MONEY
Thinking of selling your leased car? Learn the best way to put money in your pocket with your lease with a little help from CoPilot Compare.
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