Can You Switch From Lease to Finance?

For many, a car lease offers flexibility and lower monthly payments compared to purchasing. However, a driver might develop a strong connection with their leased car or find ownership aligns better with long-term financial goals. Converting a leased vehicle into a financed one is generally an available option. This process allows you to own the vehicle, providing the benefits of equity building.

Understanding Lease Buyout Options

A lease buyout is the process of purchasing a vehicle currently under a lease agreement. This option allows a lessee to acquire the vehicle either before the lease term concludes or at its scheduled end. The ability to switch depends on the specific terms outlined in the original lease agreement.

There are two primary types of lease buyouts. The end-of-lease buyout occurs when the lease contract has reached its full term, where the lessee pays the predetermined purchase option price, also known as the residual value. This value was established at the beginning of the lease.

An early lease buyout involves purchasing the vehicle before the lease term expires. This option can be more complex and may involve additional costs such as remaining monthly payments and potential early termination fees. Lessees might consider an early buyout to avoid penalties for exceeding mileage limits or for excessive wear and tear. The financial implications vary significantly between an early and an end-of-lease buyout.

Evaluating the Financial Aspects

Before committing to a lease buyout, a thorough financial evaluation is important. The first step involves obtaining an official buyout quote directly from the leasing company. This quote will detail the exact amount required to purchase the vehicle, including the residual value, any remaining lease payments for an early buyout, and various purchase fees.

Compare this buyout price with the vehicle’s current market value, which you can assess using reputable sources like Kelley Blue Book or Edmunds. If the buyout price is significantly higher than the market value, it might not be financially advantageous. However, if the buyout price is lower than or comparable to the market value, or if you anticipate significant mileage or wear-and-tear penalties, purchasing could be beneficial.

Additional costs factor into the total expense of converting a lease to ownership. These include sales tax, which varies by state, and title transfer and new registration fees. When considering financing, prospective interest rates and the loan length will impact the total cost. These elements affect the total amount paid over the loan term, making it important to secure favorable financing terms.

Steps to Finance Your Leased Vehicle

After completing a financial evaluation, the next phase involves financing your leased vehicle. Contact your leasing company to confirm the precise buyout amount and request all necessary paperwork. They will provide the official payoff quote and instructions for the purchase process.

The next step involves securing a new auto loan to cover the buyout amount. Seek financing from various sources, including traditional banks, credit unions, or the dealership. It is advisable to shop around and compare loan offers from multiple lenders to find the most competitive interest rates and terms. Many lenders offer pre-approval, providing a clear idea of your financing options before finalizing the purchase.

Once you have secured a loan, complete the loan application, which typically requires documentation such as proof of income, identification, and vehicle information. The lender will then work with the leasing company to facilitate the buyout. Finally, the title transfer process will occur.

The leasing company, which holds the vehicle’s title, will transfer it to your name or directly to the new lienholder if you financed the purchase. You will then need to register the vehicle in your name with the appropriate state Department of Motor Vehicles, completing the transition from lessee to owner.