While most buy out a car lease from the dealership they leased from, there are other options. Independent lending companies also offer lease buyout loans and typically allow more flexibility than dealerships. Below, we’ll detail your best steps when pursuing either of these methods for a lease buyout loan.
How To Get a Dealer Lease Buyout Loan
Many people choose to get lease buyout loans through the dealerships they leased their vehicles from. In some cases, auto manufacturers even require you to return to the selling dealer if you want to finance your lease buyout. Here’s what the process looks like.
1. Review or Request a Lease Buyout Packet
Toward the end of your lease, your dealer or leasing company will send a lease buyout packet with information on the expiration of your lease and what you can do. You can usually trade your car in to start a different lease, return the car or buy it. The dealer will offer in-house financing options for you to review.
Some leases allow you to purchase the vehicle before the lease has expired. In this case, you can request a lease buyout packet to see the cost of the car, which would include the residual value at the end of the lease plus a bit extra since you haven’t finished the lease. But in other cases, you can’t get a lease buyout loan until the lease expires.
2. Shop Around and Negotiate
Why would you want to shop around if you know you’re going to use the dealer’s financing option? Well, dealers may not always give you the best rate upfront. You can negotiate a better rate if you first shop around and get other offers online. If the dealer initially offers 7% interest but you can get 6% online, the dealer may match the rate.
3. Have Your Vehicle Inspected
After you decide to move forward with the dealer’s lease buyout loan, the dealer will inspect your vehicle to make sure it meets safety guidelines and doesn’t have significant damage. The dealer will probably charge you for this inspection, and the cost will be similar to other auto inspection costs in your area.
4. Complete the Application and Pay Auto Lease Buyout Fees
Once your car has been inspected and you’re happy with the loan terms, complete the application with the financing department. Pay attention to dealership fees, because the dealer will often charge to transfer the title to the new lender and complete other paperwork. You may be able to negotiate fee costs.
5. Keep On Driving
After you’re approved, you can keep driving your car as you begin the new monthly payment schedule on the lease buyout loan.
How To Get an Independent Lease Buyout Loan
There are a few main differences when financing a lease buyout loan independently. First, you typically don’t need to take your car for an inspection at the dealer. Also, you don’t have to pay dealership fees for an inspection, transferring the title and completing paperwork.
As long as your existing leasing company is paid the agreed value in the contract, the lender will be happy. That said, you may be responsible for transferring your vehicle’s title at the department of motor vehicles (DMV), though some lenders could take care of this.
Below are the steps you should take when getting an independent lease buyout loan:
1. Get Lease Buyout Information
Whether you’re doing an end-of-lease or early-lease buyout, make sure you know the exact amount you’d need to pay to cover the residual value and own the car. This is what you’ll seek when shopping for financing. If you’re just starting to compare your options, you can use a lease buyout calculator to estimate what the value would be.
2. Shop Around for Lease Buyout Financing
The next step is to shop around with lenders to find the best rate on a lease buyout loan. It’s important to do this because different lenders charge different rates — you probably won’t find the same rate twice.
Prequalifications can give you an estimate of what you might be approved for, but a full application will give you exact rates. You can apply to multiple lenders within a short period of time — 14 days for Vantage credit scoring models and 45 days for FICO® models — and only one hard inquiry will show up on your credit report. Just make sure you’re ready to shop within one of these windows so you don’t get multiple hard inquiries.
3. Complete an Application
Once you find an offer that looks good to you, move ahead with the application process. As with other types of financing, the lender will consider your credit score, payment history, debt-to-income ratio and more. They will also make sure the buyout amount isn’t more than your car is worth.
Try to keep your loan term as short as possible to save on interest. You want to avoid becoming upside down on the loan, which could happen if you choose a long loan term or a high interest rate.
4. Buy Your Car
After you get approved, the next step is to buy your car. Often, your new lender can facilitate the buyout with your existing leasing company. But in some situations, you may simply receive a check from the new lender for the buyout amount. In that case, you’ll need to take that to your leasing company and complete the buyout process yourself.
5. Transfer the Title
The last step is important. Since you have a new lender, you’ll need to transfer the title from the leasing company’s name to your name and add the lender as a lienholder on the title. Be sure to do this quickly. Also, avoid driving the vehicle while it has a lapse in registration, as this is illegal.