What is a lease buyout loan?
A lease buyout loan allows you to purchase a vehicle you’ve been leasing. Normally, when you lease a car, you’re expected to return it at the end of a set period of time. However, when you sign the papers, there’s usually a purchase price provided at the time you sign your lease contract. It’s based on the residual value of your car.
If you don’t have enough ready cash to pay the required lease buyout price, getting a loan might make sense. You can use the financing to pay the costs associated with purchasing your leased vehicle, including the buyout price and associated fees.
When does it make sense to consider a lease buyout?
If you have a lease, here are some things to consider as you decide whether it makes sense to buy it out:
- Does the car work for your lifestyle? If you enjoy the car and you like that it’s a relatively late model and has few maintenance and repair needs, it might make sense to keep it instead of going through the process of getting a different car.
- Is the residual value less than the current market value? Compare the residual value of your car and compare it to current market values. Used cars, on average, cost more than $25,000, according to Kelley Blue Book. If you can buy out your lease for less than the price of your car’s current market value, it might make sense.
- What rates can you get on the best car lease buyout loans? If you can get a competitive interest rate and keep your costs relatively low, financing a lease buyout might cost less than starting a new lease. Check to see what payment options you can get with your lease buyout loan to see whether it fits your budget.
How to compare loan offers
When comparing lease buyout financing offers, think about what works for your situation. Some factors to review include:
- Annual percentage rate (APR): Many lenders offer prequalification without a hard credit inquiry. This can provide you a starting point to compare interest costs. Make sure you compare APRs across lease buyout loans, as this is a more accurate estimate of annual costs because it includes fees.
- Repayment term: Lenders offer different repayment terms for lease buyout financing. A longer repayment term usually translates to a lower monthly payment. If you’re looking for a lower payment than your current lease payment, a longer term might fit into your budget. However, a longer repayment term also usually results in higher overall costs as you pay interest for longer.
- Vehicle requirements: Depending on your lender, there might be vehicle restrictions. For the most part, though, lease buyouts are often late model cars that are likely to fall within age and mileage limits. Double-check to make sure your car meets the criteria.
- Fees: Pay attention to fees. You might need to pay a buyout fee, origination fee, document fees and other costs. Verify that you don’t have to worry about prepayment penalties.
What affects your rate and approval
As with a lot of loans, whether you’re approved—and the rate you receive—depends on the car lease buyout lenders. Some factors considered by lenders typically include:
- Personal finance situation: Lenders usually check your income to ensure you can make payments. Additionally, they might consider how much debt you already have and how those payments might impact your ability to repay your lease buyout loan.
- Credit score: You will likely need to meet credit score requirements. Each lender has its own criteria, but you will likely get the best rate if you have a credit score above 700.
- Vehicle characteristics: When you apply for a lease buyout loan, you normally need to share information about the car, including how old it is and its mileage. Some lenders take into account whether it’s an electric vehicle and how you plan to use it.
- Term length: How much you pay in interest is influenced by how long your loan term lasts. A longer loan term normally results in a higher interest rate. If you can afford the higher payment that comes with a shorter loan term, it might result in a lower interest rate.
How to apply for a lease purchase loan
You can apply for a lease purchase loan with the following steps:
- Review your lease terms, including purchase price: Most lease contracts include a buyout amount based on residual value. Review the lease terms and the requirements for a buyout.
- Check your credit: Review your credit report to make sure the information is correct. Fix mistakes that might impact your ability to qualify for a loan. Checking your credit also helps you get an idea of what you might qualify for.
- Compare lenders: Use the prequalification or preapproval process to compare multiple lenders to see what terms and interest rates you might get. Look for a loan that meets your budget needs.
- Apply for your loan: Gather your information, including name, birth date, Social Security number, address and vehicle information. Often, you also need to provide your Vehicle Identification Number (VIN) and insurance information when applying for a lease buyout loan.
- Verify additional costs: You might need to pay a buyout fee. Additionally, there might be other fees associated with transferring the vehicle to your name or other registration requirements with your state. Make sure you understand those total costs and what to expect, and determine whether those costs can be rolled into your lease purchase loan if needed.
- Finalize your loan: Once everything is approved, finalize your loan and find out when you need to make your first payment.
Methodology
We analyzed hundreds of data points from more than 25 lenders and assigned ratings on a scale of 1 to 5 stars to create a list of auto loans that cater to different preferences. Our list of lease buyout loans are a subset of our auto loans ratings—the top-rated lenders that offer lease buyout financing. We assigned points based on weighted factors, with total points adding up to 100. Lenders with the highest point values were assigned five stars, while other lenders were assigned ratings based on their total point values, with the lowest-scoring companies receiving 2 stars.
Each factor was weighted based on our assessment of its value to consumers, using publicly available information and the expertise of Buy Side staff. Learn more about how we rate auto lenders.
FAQ
What credit score qualifies for best rates?
Every lender has its own criteria. However, the best rates are generally reserved for those with good to excellent credit, usually at least 680 to 700.
Are lease buyout rates higher than regular auto loans?
Yes, lease purchase financing usually comes with a higher interest rate than some other auto loans.
When does it make sense to buy out a lease?
If your car’s residual value is less than the current market value, it might make financial sense to complete a lease purchase. Additionally, if you like your car, and don’t want to go through the process of getting a different car when your lease ends, it might make sense to complete a lease buyout.
Can I negotiate the buyout price?
Generally, the buyout price is listed in the lease contract, but you might be able to negotiate the price.
