If you love your leased vehicle, buying out a lease at the end of its term may seem like a good idea. Opting for a lease buyout loan may provide you with the funds needed for this purchase.
However, before applying for a lease buyout loan, there are certain considerations you need to make. Based on the fair market value of the vehicle when the lease term ends, or on the agreed on a price that is listed in the lease agreement, and the interest rate that you may be approved for, along with the fees involved, the lease buyout loan may be an option that is more expensive than you think.
How Does Buying Out a Lease Work?
When your lease is up, you have a few options. You can extend the lease, return the vehicle to the dealership, or purchase it. Look at your paperwork to confirm the options that are available to you because not all leasing agreements will let you purchase the vehicle after the term of the lease is over. If yours does, and you want to purchase the car but don’t have the cash needed, you will probably have to secure the funds needed to buy out your lease with a lease buyout loan.
Before you apply for this loan, make sure you read the lease agreement carefully to find out what has to be done to make this purchase. You will have to let the leasing company know of your plans ahead of time.
There are some credit unions, banks, finance companies, and online lenders that provide a lease buyout loan, which is similar to other car loans. The loan is based on the total amount that you wish to borrow, the loan term, and the annual percentage rate. Make sure to shop around to compare several estimates of loan terms and rates so you can find a loan that best meets your needs.
What to Consider with the Lease Buyout Loan?
There are several things you need to know if you are considering buying out a lease.
Not Every Lender Offers Buyout Loans
Regardless of if you are planning to borrow from a finance company, credit union, or a bank, the types of loans that you will have access to will vary by lender. When you are shopping around for the right loan, be sure to check with different lenders to find out if they offer the lease buyout loans, since not all of them will.
You May Wind Up Upside Down with Your Loan
Knowing what the current market value of your vehicle is, is important. You can find an estimate of the worth of your vehicle by using the online tools that are available. If the current market value of the car is higher than the residual value – along with any fees for buying the lease – then you may have equity in the vehicle and it may make sense for you to purchase it.
If the situation is reversed, which means that the residual value of the vehicle is higher than the current market value, the lease buyout loan may put you at the risk of being upside down in the car loan. This is especially the case if you aren’t making a down payment and the finance is for the entire cost of the loan buyout. If this is the case, then you may wind up borrowing much more than the car is worth.
The Interest Rates Are Often Higher
A leased vehicle is typically thought of like a used car. This means you may have to secure financing for a used vehicle. Usually, a loan for a used vehicle is going to have higher interest rates than a new vehicle loan. Also, a lease buyout loan that is being offered by some lenders will have higher interest rates than used or new car loans, as well.
Buying Out a Lease: How to Get the Funding Needed
The first step to take when you are interested in buying out a lease is to contact the leasing company. You can discuss the options that are available to you or you can check to find out what the lease contract says. This will help you answer any questions that you may have regarding the end-of-lease costs or the vehicle’s residual value and they can help you understand any fees that may be associated with the lease buyout loan.
It is also a good idea to shop around for a better loan. There are many lenders that will let you apply for preapproval. If you are preapproved, a lender will tell you the estimated amount you are eligible to borrow along with what your APR and the term of the loan will be. However, remember that being preapproved doesn’t guarantee you will actually be approved for the loan – it just gives you a good estimate of if you may be approved and a general idea of what the terms of your loan may be.
If you are interested in buying out your lease, be sure to keep all the information here in mind. Finding the right bank or loan provider is going to be the key to getting a quality loan that meets your needs. Contact Vantage Finance today and we will connect you with reputable lenders who can help you.