Thinking about keeping your leased car instead of turning it in? A lease buyout loan lets you finance the remaining balance on your lease so you can purchase the car you already know and drive.
For many drivers, this option makes sense—whether it’s to avoid extra mileage or wear-and-tear fees, hold on to a vehicle they trust, or take advantage of equity if the car’s market value is higher than the buyout price.
In this guide, we’ll break down how lease buyout loans work, when they’re a smart move, what to watch out for, and the exact steps to take if you decide to move forward.
What a Lease Buyout Loan Is and How It Works
When a lease ends, you typically have three choices: return the car, start a new lease, or buy it. Whether you can purchase your leased vehicle depends on the terms in your lease contract—not every lender includes a buyout option.
If a buyout is allowed, you can either pay cash or finance the remaining balance with a lease buyout loan. This type of loan lets you purchase the car directly from the leasing company or manufacturer.
Financing can be arranged through a bank, credit union, online lender, or finance company. Keep in mind that, unlike paying cash, a loan adds interest charges and taxes, which increase the overall cost of keeping the car.
Buying Out a Lease Before the Contract Ends
Most leases are designed to run their full term, but some lenders allow early buyouts. While this might sound appealing, it often comes with drawbacks.
- Early termination fees: Many leasing companies charge penalties if you end the contract before the agreed term. These fees can add up quickly.
- Higher buyout cost: Because the car is newer and worth more early in the lease, the remaining balance will be higher than it would be at the end of the term.
- Duplicate taxes and fees: Just like buying a car outright, you’ll owe sales tax and registration fees. If you buy early, you may end up paying these costs sooner and at a higher rate since the car’s value is greater.
For most people, waiting until the lease ends results in a lower buyout price and fewer extra costs.
Pros & Cons of Lease Buyout Loans
A lease buyout loan can be a smart move in some situations, but it’s not always the cheapest path. Here are the main upsides and downsides to weigh before moving forward.
Pros
- Familiarity with the car: You already know how the vehicle has been maintained and how it drives, which removes the uncertainty of buying a used car from a stranger.
- Avoid extra lease penalties: Buying out the lease can help you sidestep expensive mileage overage charges or wear-and-tear fees when turning the car in.
- Convenience: You skip the hassle of shopping for another vehicle, negotiating with dealers, and adjusting to something new.
- Equity opportunity: If the car’s market value is higher than the residual value set in your lease contract, you could build instant equity.
Cons
- Potentially higher rates: Lease buyout loans sometimes come with higher interest rates than standard auto loans, which drives up the total cost.
- Fewer financing choices: Not every bank, credit union, or online lender offers lease buyout loans, so you may need to shop harder to find one.
- Extra costs: You’ll pay sales tax and registration fees again when you switch from leasing to owning. Depending on where you live, these costs can be significant.
- Depreciation risk: Once you buy the car, you take on the full impact of depreciation. If the vehicle’s value drops quickly, you could owe more than it’s worth.
Key Factors to Consider Before a Lease Buyout Loan
A lease buyout loan can make sense in the right situation, but it isn’t always the best move. Before you commit, take a step back and look at these key factors:
- Lender rules: Not every leasing company or bank allows buyouts. Review your lease contract and confirm that your lender offers this option.
- Affordability: Run the numbers with an auto loan calculator. Make sure the monthly payments, interest, and fees fit into your budget without stretching your finances too thin.
- Car fit: Think about your current needs. A compact car may have been perfect when you signed the lease, but if your lifestyle has changed, buying it may not make sense.
- Condition of the vehicle: If you’ve kept the car in excellent shape and trust its reliability, buying it could be smarter than starting over with a used car you know nothing about.
- Lease-end fees: If you’ve gone over mileage limits or the car has wear-and-tear damage, a buyout might save you from costly penalties.
- Value comparison: Check the car’s residual value (buyout price) against its current market value. If the market price is higher, buying it could give you built-in equity.
Step-by-Step Guide to Getting a Lease Buyout Loan
If you’ve decided a lease buyout makes sense, here’s how to move forward with confidence.
1. Contact the Leasing Company
Reach out at least two to three months before your lease ends. Tell them you’re considering buying the car, and ask:
- What is the car’s residual value?
- What fees or taxes will I owe?
- What steps are required to start the buyout?
This early conversation gives you time to compare options instead of scrambling at the last minute.
2. Decide How You’ll Pay for the Car
If you have the cash, paying upfront is the simplest route—you’ll avoid interest charges and get the title once the transfer is complete.
If you need financing, you’ll want a lease buyout loan, not a standard auto loan. Be clear about this when talking to lenders so you get accurate quotes.
3. Compare Lease Buyout Loan Providers
Not all lenders treat lease buyouts the same, so shop around. Pay attention to:
- Interest rates: Even a 1% difference can change your total cost by hundreds or thousands of dollars.
- Loan terms: Shorter terms mean higher monthly payments but less interest overall. Longer terms spread payments out but cost more in the end.
- Prepayment rules: Look for lenders that don’t penalize you if you want to pay the loan off early.
- Customer support: Reviews and recommendations matter—choose a lender known for being helpful and transparent.
4. Apply and Choose the Best Offer
Submit applications with a few lenders. Many will start with a soft credit pull, which won’t hurt your credit score. Compare offers side by side and choose the one with the lowest APR and most flexible terms that fit your budget.
5. Close the Loan and Transfer the Title
Once you accept an offer, the lender will work with you and the DMV to finalize the buyout. If you financed the car, the title will stay in the lender’s name until you pay off the loan. After closing, you officially own the vehicle.
Final Thoughts
A lease buyout loan can be a smart choice if you want to keep driving a car you know and trust. The key is running the numbers and comparing financing options before committing.
Remember that lease buyouts usually come with extra fees and taxes, so factor those into your decision. With careful planning and the right loan terms, buying out your lease could be more cost-effective than starting over with a new car or another lease.
Frequently Asked Questions
Do lease buyout loans require a down payment?
Not always. Some lenders may allow you to finance the entire buyout amount, while others may ask for a down payment to reduce the loan balance. Putting money down can lower your monthly payment and reduce the total interest you’ll pay.
What credit score do I need for a lease buyout loan?
Requirements vary by lender, but many prefer a credit score in the mid-600s or higher. That said, some lenders may approve applicants with lower credit scores if other factors—like steady income or a strong payment history—are in place. A higher score will usually qualify you for better interest rates.
Are lease buyout loans harder to get than regular auto loans?
Not necessarily. Qualification standards are similar to traditional auto loans, though fewer lenders offer them, which can limit your options. The approval decision will still depend on your credit score, income, debt-to-income ratio, and overall financial profile.
Can I refinance a lease buyout loan?
Yes, you can refinance a lease buyout loan just like you would a traditional auto loan. Refinancing could potentially lower your interest rate or adjust the loan term, which could reduce your monthly payments. However, you need to carefully consider any associated fees and the overall cost of refinancing before making a decision.
Can I negotiate the price of my leased car at the end of the lease?
The residual value of your leased car, which is the lease buyout price, is typically predetermined at the beginning of the lease. However, it’s possible to negotiate the buyout price in some cases, especially if the car’s market value is lower than the residual value. It’s worth discussing the possibility of negotiating the purchase price with your leasing company before committing to a lease buyout.
