Find Out if You Can Refinance Before Your Lease Is Up

cars parked that were refinanced
Refinance Your Car Lease Before the Term EndsKentaroo Tryman - Getty Images

Leasing a car has a lot of benefits, and it can be a great option for some drivers. With a leased car, you may have more freedom to choose what you drive and for how long. But the cost of leasing a car can be expensive. Some drivers have the means to pay their monthly lease payments when they sign the lease, but if something changes in their financial situation, it could mean struggling to make the payments each month. If you're in this situation, you may wonder if you can refinance before the lease is up.

While it's always best to ensure you can afford your lease payments before signing the contract, changes in your situation are often unavoidable. You may have to consider ways to alleviate some financial burdens, such as a car lease, to improve your finances. Although it can be tricky to get out of your car lease before the term ends, you may have options. This guide will explain if you can refinance before your lease is up and how to do it if you decide this is the right option. To learn more, fill out the form below:

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Can You Refinance a Car Lease before the Term Is Up?

When you refinance an asset, it means you're changing one debt for another, but the new loan typically has better terms and a lower interest rate. So if you want to refinance a car loan, you're most likely just changing from one loan company to another that offers you a better deal. A lease is a little different. Unlike a car loan, leases allow you to use a car for a specified time and a set number of miles. You aren't paying to own the vehicle; it's more like you're renting it for an extended period.

Upon signing a lease, you're agreeing to the terms of that lease. It details exactly how long you can drive the car, with most leases lasting anywhere from 24 to 48 months and the most common car lease term being 36 months, according to Moneyshake. You're also given a mileage cap when you lease a car; if you exceed that cap, you'll pay extra fees for every mile over. If you want to get out of your lease early, you're not technically refinancing, because you don't have a loan that you're replacing with another.

Instead, you're buying out your lease and exchanging it for a loan. This is a lease buyout, and not all car lease contracts have this option. So, if you want to refinance your car lease, you'll need to make sure this is an option you have in your lease agreement. Some leases only give you a buyout option at the end of the term, while others let you get out of the lease early, but you may have to pay extra fees if you take this route.

To get out of a car lease, you have these options:

  • Turn the car in and get a new lease on a new vehicle.

  • Extend your lease — only some companies allow for this option.

  • Return the car without exchanging it for a new lease.

  • Buy out the lease so you can own the car.

If you choose the buyout option, it's sort of like refinancing, as you're changing the lease for a loan, and you'll need to find a lender who is willing to work with you to make it happen.

Why Refinance a Car Lease?

You may want to refinance your car lease, or buy it out, for several reasons. Perhaps you felt the payments weren't bad when you first signed your lease, but now you realize they're too much for you to handle comfortably. Or, maybe your financial situation has changed because you lost your job or took a pay cut for a new role. In some cases, people want to buy out their leases because they've gone over their mileage cap or damaged the vehicle and are at risk of paying high fees at the end of the lease term.

Another reason you might want to refinance and get a loan instead of a lease is that you really like the car and want to own it. With a lease, you only have the right to drive the car for a specified time, so if it's a vehicle you enjoy driving, you may want to own it eventually. Regardless of why you want to refinance your car lease, it can be a good option if you can no longer keep up with your monthly payments.

Benefits of Refinancing a Car Lease

If you're not able to make your monthly lease payments or if you just want to own the car, these are some benefits of refinancing a car lease:

  • You can get a lower monthly payment because the car is no longer brand new.

  • You may get a better deal on the car if you have some equity.

  • You can avoid paying over-mileage or excessive wear and tear fees.

  • You'll have the option to sell the car if it's worth more than you owe.

Downsides of Refinancing a Car Lease

Of course, there are also disadvantages to refinancing a car lease that you should be aware of before you make this move, such as:

  • You'll have to pay lease termination fees and other costs to end the lease early.

  • You'll be responsible for all the maintenance costs for the car.

  • You won't be able to exchange it for a new car lease down the road.

  • You may have a high interest rate due to the recent spikes set by the Federal Reserve.

How to Refinance a Car Lease

To refinance a car lease, you can take these steps:

Read Your Lease Agreement Carefully

Your lease agreement has all the details of your lease. It determines whether you can buy out the lease and when if it's an option. Reading the agreement will help you understand what you have to do to change your lease into a loan and how much it will cost. The contract must explain what the fees will be if you decide to terminate the agreement early, and it's important to be sure that you'll save money by refinancing.

The Federal Reserve states that terminating your lease before the agreed-upon time could cost several thousand dollars. Therefore, you need to carefully consider if this option will save you money.

Ask the Lessor for the Payoff Amount

Once you've determined that you have the option to end your lease early, you can ask your lessor for the payoff amount. This amount will include the rest of your payments, any fees associated with early termination, and the residual amount you would owe at the end of the lease to buy out then. Leasing companies calculate the value your car will have at the end of the lease based on factors like:

  • Estimated mileage.

  • Type of vehicle.

  • Age of the vehicle.

  • Popularity of the vehicle.

If you end your lease early, you'll be responsible for making the final payments on the car, paying any termination fees, and paying the buyout amount that's in your lease. Depending on the type of vehicle you drive and how long you have left on your lease, these costs could amount to a hefty sum.

Calculate the Numbers

You can use an online tool to calculate the numbers for ending your lease early or do it on your own using the old-fashioned pen-and-paper method. You'll need to know the early lease termination fee, what you still owe toward the lease, the car's market value, and the buyout amount. Also, consider what your monthly lease payment is and how much you'll pay if you switch to an auto loan. After you do your calculations, you'll know whether a lease buyout is worth it or if you should stick with the lease until it ends.

Find a Lender

If refinancing your lease seems like the best option for you financially, you'll want to start shopping for a lender. Get quotes from several banks to find one that offers you the best rates and terms. Not all lenders are willing to do lease buyouts, per NerdWallet, so it's also a good idea to make sure the lender you want to use will provide this service.

Buy Out the Lease

With a lender willing to loan you money to buy out your lease, you can go to the lessor and let them know that you're going to terminate your lease early. They'll most likely be able to work directly with the lender to finalize the deal, so all you'll need to do is sign the paperwork that gets you out of the lease and into the loan. You still don't technically own the car until you pay off the loan, but you can resell a vehicle you have a loan on as long as you pay it off when you sell it, which you can't do with a vehicle you lease.

Should You Refinance Your Car Lease?

Although refinancing your car lease may seem like it will get you out of those expensive monthly payments, it might not be that easy. Terminating your lease early comes with expenses and fees you should consider before going through with a lease buyout. However, refinancing your car lease could be a good idea if:

  • The vehicle's market value is higher than the residual value or buyout amount.

  • You have a good credit score and can qualify for a low interest rate on a loan.

  • Your car is in tip-top shape, and you really like driving it.

  • You want to have equity in the vehicle so you can sell it.

  • You don't care about having to pay for maintenance and repairs out of pocket.

FAQs about Refinancing a Car Lease

These are the answers to some frequently asked questions about car leases and refinancing them that may help you better understand if this is the right option for you:

Can I Lower My Car Lease Payment?

Your car lease payment is set at the start of your lease and will remain the same throughout the term of the agreement. The only way to alter your monthly lease payment is to return the vehicle and pay the early termination fees or do a lease buyout. Refinancing your lease could result in lower payments, but this isn't always the case.

Can I Refinance My Car Lease Immediately?

If your lease agreement allows you to buy out your lease early, you can refinance it anytime. However, the sooner you want to buy out your lease, the more it will cost. You're on the hook for making all the payments you agreed to when you signed your lease. You'll have to pay those along with the early termination fee, the residual amount, and anything else the lender requires when getting a loan. So, the longer you are into your lease term, the less expensive it will be to refinance.

Can I Transfer My Lease to Someone Else?

Your lease agreement should outline whether you can transfer your lease to another party. Not all leases allow for this, but if yours does, you should be able to transfer your lease along with the payments to someone else.

If you need to end your lease early, knowing whether you can refinance before your car lease is up can help you determine if this is an option you should pursue. It's typically best to finish your lease term, as ending it early comes with a lot of fees. However, you can calculate how much it will cost to finish the lease versus switching to a loan to find out if you'll benefit financially from refinancing your car lease.

Hearst Autos Research, produced independently of the Car and Driver editorial staff, provides

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