Refinancing Your Car Lease: Can You Do It?

Jason SteeleUpdated November 15, 2022

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Yes, you can refinance a car lease. What it means is that you take out a loan to buy the car instead of paying rental amounts every month. After refinancing a car lease, you become the owner of the car.It’s different from refinancing a car loan, which happens when you own the car and seek a new interest rate or terms on your loan. A leased car is not one that you own, which changes the need for it and the process. The best way to avoid refinancing a car lease is to feel good about negotiating a car lease before committing to it. However, there are situations when refinancing the car lease makes sense. Read on to learn the pluses and minuses of a refinanced car lease.

How Does Refinancing a Car Lease Work?

Can you refinance a lease? To understand the issue better, you must first understand a car loan and the car lease process. When you are leasing a car, you are essentially renting it from a dealership. Instead of buying the car with either cash or a car loan, you pay a monthly rental amount for the car lease period. A car lease period is usually between 36 and 48 months. At the end of your lease period, you can either return the car to the dealer or purchase it at a negotiated amount. Refinancing a car lease is also called a lease buyout. When you refinance a car lease, you take out a loan to buy the car instead of paying high monthly rental amounts. Through the refinancing process, you become the owner of the car. After you refinance the car, you will be making loan payments instead of lease payments.

When Is a Good Time to Refinance a Car Lease?

Refinancing a car lease can be a good option if you have a strong credit score and can afford to take on a loan or if it makes financial sense to buy the car instead of paying higher monthly payments. Or perhaps you want to get out of the lease agreement before the expiration date. It can also be a good time to refinance your car lease if the current resale value of the car lease is more than the buyout price. You can theoretically refinance a car lease immediately after signing the lease contract. Therefore, it is possible to refinance a car lease at any time, as long as you have the cash to pay for the car or have a good enough credit score to qualify for an auto loan. A “good” credit score is often seen as 670 plus. However, you should always check the lease contract for possible clauses against early buyouts.

Steps for Refinancing a Car Lease

Before refinancing a car lease, make sure you know the proper steps to ensure that you are getting the best value.

1. Determine Remaining Car Lease Balance

The first thing when pondering if you can refinance a car lease is to determine the remaining car lease balance. You can ask the dealer for the payoff amount on the car lease. The payoff amount will be higher than the rental amount because it may include lease termination fees, sales tax, transfer costs, and other fees.

2. Compare Lenders

Once you know the car lease balance, shop around for good refinance deals with different lenders. Lenders could include banks or credit unions. Compare the auto loan’s interest rates and terms from different lenders to find the best option.

3. Determine the Qualifications for Car Lease Refinancing

Different lenders will have different qualifications for refinancing a car lease. Some lenders allow pre-qualification, which could allow you to avoid a hard inquiry at first. It is important to keep in mind a car loan's impact on credit scores. Many lenders also won’t lease a car to someone with bad credit.

4. Apply to Get Your Car Lease Refinanced

Once you find an option you can afford, you should apply to get your car lease refinanced. After the loan is approved and funded, you can pay off the dealer and then make monthly payments to the new lender moving forward.

Is Refinancing a Car Lease a Long Process?

It is possible to refinance a car lease immediately after signing the lease contract. Refinancing a car lease is not a long process, as long as you meet the qualifications.

Pros of Refinancing a Car Lease

There are advantages and disadvantages of refinancing a car. Monthly car lease payments are typically lower than monthly car loan payments. Most rental agreements also include maintenance charges as part of the contract, which could save you money if the car has issues. You can avoid fees like maintenance fees, lease cancellation fees, and wear and tear fees. Leasing a car can be a good option if you want a car for less than a few years, don’t drive often, don’t want the hassle or costs of owning a car, or like to get a different car every few years.

Cons of Refinancing a Car Lease

One of the biggest cons of leasing a car is that you won’t build equity in a leased car. Since you don’t own the car with a lease, you can’t build equity. However, if you refinance the car lease, you can build equity. Refinancing a car lease also means you will pay termination fees to the dealer and sales tax and transfer fees. You could also pay a high refinance APR if you don’t have a good enough credit score.

Ways to Terminate a Lease

If you are considering getting out of a car lease, you have a few options. You could refinance the car lease, transfer the lease, lease another vehicle or do a lease pull-ahead.

Refinance the Car Lease

A refinance car lease is an option if you don’t want to lease your car anymore, but do want to own it.

Transfer Your Lease

If you know someone who qualifies for a lease and is willing to take it over for you, you could transfer your lease to that person. Not all leasing companies allow this, and they will likely charge a transfer fee.

Lease Another Vehicle

If you are happy with your lease and want to continue leasing a car, you can return the car and lease another vehicle. If you lease again from the same company, the company will usually waive your termination fee on the old lease.

Lease Pull-Ahead

A lease pull-ahead allows you to skip the last few payments if you are going to lease another car from the same company. Lease pull-aheads are not offered by all leasing companies, but it could be a good option if you are close to the end of your lease term. You can also often avoid paying a termination fee with a lease pull-ahead.

The Takeaway

If you want to reduce your monthly payments and get a new loan with a better APR and loan terms, or want to own your leased car, you can refinance your car lease. Refinancing a car lease can be a good option if you have good credit, can afford a car loan, and want to get out of the lease agreement. And if you ever need to refinance a car loan, Lantern has options in its marketplace.

Frequently Asked Questions

Can you refinance a lease on a car?

How can you refinance a car lease?

How long does it take to refinance a car lease?

Photo credit: iStock/GrvPixels

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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