How to Refinance a Leased Car and Own Your Vehicle
Transform your leased vehicle into an owned asset. Discover the complete process of financing your car's buyout and securing full ownership.
When considering a vehicle currently under a lease agreement, “refinancing” refers to buying out the existing lease and securing new financing for that purchase. This allows individuals to transition from leasing to owning their vehicle. This guide outlines the steps to convert a leased car into one you own, covering lease terms, vehicle valuation, loan acquisition, and ownership transfer.
Understanding Your Lease Agreement
Before initiating a buyout, review your lease agreement to identify specific terms. The “purchase option price” or “residual value” is a key figure, representing the amount you can pay to buy the vehicle at the end of the lease term. This value is determined at the lease’s inception and remains fixed. You will find this percentage, typically between 45% and 60% for a 36-month lease, outlined in your contract.
Your lease agreement also specifies “purchase option fees” for buying the vehicle, often a few hundred dollars. Some contracts may contain early buyout clauses, detailing conditions and charges if you purchase the car before the lease term concludes. Terminating a lease early can incur penalties, which might include several months’ rent or a predetermined fee. Contact your leasing company to confirm the exact buyout amount and any associated fees.
Determining Your Vehicle’s Value and Buyout Price
Understanding the vehicle’s current market value in relation to its residual value is important. The residual value is the predetermined amount from your lease agreement to purchase the car at the end of the term. The current market value is what the vehicle is worth today based on mileage, condition, and demand. Online resources such as Kelley Blue Book (KBB), Edmunds, and NADA Guides can assist in researching your vehicle’s current market value.
To calculate the total buyout price, begin with the residual value from your lease agreement. Add any remaining monthly payments, the purchase option fee, and applicable sales tax. Sales tax regulations on lease buyouts vary by jurisdiction, with some states incorporating sales tax into monthly payments and others requiring payment on the full purchase price at buyout. Also account for registration fees and other miscellaneous costs. Comparing this total buyout price to the vehicle’s current market value helps determine if purchasing the car is advantageous.
Securing Financing for the Buyout
After determining the total buyout price, secure a new loan to finance this purchase. Financial institutions offer auto loans, including banks, credit unions, online lenders, and manufacturer financing arms. Each lender has specific application requirements, generally including proof of identity, income (such as pay stubs or tax returns), and residency. Lenders also require the lease buyout quote from your leasing company and vehicle information, including its Vehicle Identification Number (VIN).
Your credit score influences the interest rate and terms of your auto loan. A higher credit score qualifies you for lower interest rates, reducing the overall cost of the loan. Conversely, a lower score may result in higher interest rates or less favorable terms. Loan terms, including interest rate and repayment period, directly impact your monthly payments and the total amount paid over the loan’s life. Compare loan offers from multiple lenders, considering the annual percentage rate (APR), interest rate, loan length, and total financed amount to find the most suitable option.
Completing the Lease Buyout and Loan Process
Once financing is secured, complete the lease buyout and transfer ownership. Notify your leasing company of your intention to exercise the purchase option, adhering to any specified notice periods. Loan funds from your new lender will be disbursed directly to the leasing company to cover the buyout amount. This payment settles the remaining lease obligation.
Following settlement, transfer the vehicle’s title from the leasing company to your name. This step is essential as the title is the legal document proving ownership. Complete a title transfer application form and submit it to the state vehicle department, along with the bill of sale from the leasing company and proof of sales tax payment. Finally, update your vehicle’s registration and insurance to reflect your new ownership, ensuring continuous coverage.