Can You Refinance a Car Lease?

Before looking at the answers to questions like: can you refinance a leased car before the lease is up? And can a lease be refinanced? Here’s what it means to lease a vehicle. 

When you sign on for a car lease, you’re making a contract with a dealership or car leasing company to drive their vehicle for an agreed-upon amount of time. This timeframe often includes a mileage limit, which you won't encounter when buying a car. 

When you lease a vehicle, you pay to use it rather than a full purchase price. You will make monthly payments, and the amount you pay will be based on the vehicle’s projected depreciation value over the lease term’s lifetime. Unfortunately, once you have entered into a lease agreement, it can be difficult to end it or refinance. 

The answer isn’t as cut and dry as you might like it to be. This is because refinancing is a complex situation. For example, when you refinance a house, you get to keep the asset (the home) and replace your current financing agreement with a new and better financing solution. Those with car loans go through this process when they refinance it – they keep the vehicle and replace the current auto lease with a new one. 

Unfortunately, car leases don’t work the same way home loans and auto loans work. You cannot keep the same vehicle and replace your car’s current lease with a new one. You have a few options to get out of the lease or lower payments, but the option most similar to refinancing a car lease is entering into a car lease buyout process. 

When people refer to refinancing a car lease, they speak about a car lease buyout. During this process, you would need to obtain a car lease buyout loan and buy the vehicle you’ve been leasing – thus becoming an owner rather than a renter. Although it’s not a true refinance solution, it is the closest an individual will get to financing their car’s lease. 

In addition, it is also important to realize that a buyout loan might not come without its consequences. Namely, a lessee might be responsible for expensive early termination fees. So keep this in mind when debating your options. 

You’ll need to begin the buyout process to refinance a car lease. Below are a few of the steps you can take if you want to refinance your vehicle.

1. Determine if a buyout is an option

Unfortunately, not every lease agreement offers lessees the chance to purchase the vehicles they are lending. That’s why checking the lease agreement is crucial to determine if buying the vehicle is permitted. 

Depending on the lease, you might be able to buy the car, but only at certain times during the lease term. If it states that a buyout is not an option, you will have no choice but to exit the lease or try for an extension, but high fees will likely be involved. 

2. Confirm the payoff amount of the car’s lease

After confirming if a buyout is possible, you’ll also need to confirm the payoff amount on the car’s current lease. The payoff amount will be based on the residual value of the car. 

Often, this figure can be found in the lease paperwork, or the lender can confirm the payoff amount if asked. Once the payoff amount is known, auto loans can be investigated based on the amount needed to buy out the car.

3. Obtain financing approval

Once the payoff amount is known, financing approval is needed to complete the buyout. To get approved for a buyout loan, you must fill out an application form in person or online and provide personal information. 

For example, you’ll need to provide your social security number, driver’s license, vehicle information, including VIN and mileage, and proof of income. This information allows you to be approved or rejected for a buyout loan. 

4. Finalize the loan

If you’re approved for a buyout loan, the last step is to finalize it. Depending on the company, the lender might issue the payment directly to the leasing company, or you might receive the payment that you can then use to pay off the amount owing on the car. 

Note that after the leased car is ‘refinanced,’ you must pay the new lender a monthly installment. At the end of the loan term, you’ll own the car outright and have the opportunity to refinance a new auto loan should you want a new car. 

Knowing when to refinance a lease can be challenging – especially if you have never done it before. However, refinancing a car lease can be a smart financial move when done correctly. Yet, it’s essential to consider the timing of when you decide to refinance, as this can affect whether it’s possible or not and the fees you will incur. 

Here are some key points to help you determine when to refinance your car lease:

1. During the mid-lease evaluation

The ideal time to consider refinancing is around the midpoint of your lease, often when you only have between 12 to 24 months remaining. By this point, your car has experienced its most significant depreciation, and you’ve already paid off a significant portion of its value through monthly lease payments. 

2. After an interest rate drop

Even after leasing a vehicle, keeping an eye on interest rates in the auto finance market is important. Refinancing your car can be advantageous if interest rates have significantly decreased since you initiated your lease. 

Lower interest rates often lead to reduced monthly payments, saving you money over the remaining lease term. So, monitor the interest rates and bring it up with your leaser if you think you can get a reduction in your monthly installments. After all, you never know what they will say until you try; just be sure to time it correctly. 

3. After an improved credit score

There are many benefits to having an improved credit score, including potentially lowering the interest rate on your car lease. Should your credit score have improved significantly since the start of your lease, you may qualify for a lower interest rate during the refinance (buyout) process. A higher credit score demonstrates improved creditworthiness, potentially resulting in better loan or lease terms.

4. During a change in financial situation

If your financial circumstances have changed (positively or negatively), it may be wise to consider refinancing. An increase in income may enable you to afford a shorter lease term or a different vehicle, while financial challenges might require extending the lease to lower monthly payments.

Although there are many advantages to refinancing a car lease, there are times when you shouldn’t. Below are some instances that indicate when you should avoid refinancing your leased vehicle. 

• You’re expected to pay more than it’s worth: When the vehicle’s buyout amount exceeds its market value, refinancing your car lease isn’t worth it. It would often be cheaper to lease another car or enter into a car subscription like one from FINN.
• You want the choice of a variety of new cars: With a car lease, you have the opportunity to swap your current vehicle for a newer model every few years. Even though you don’t get to keep it, this is an advantage for those who like the opportunity to choose from the latest and greatest cars on the market. So, don’t refinance your car lease if you want to continue having this choice. 
• You want to avoid repair and maintenance costs: Refinancing a vehicle should be avoided if you do not want to be burdened with repair or maintenance costs. You won’t have to pay for these costs with a leased vehicle if it’s still covered by factory or extended warranties. However, with a FINN car subscription, you can also avoid these costs, so keep this in mind.

The simple answer is yes, and there are several strategies you can use to lower your car lease payment. These methods include the following:

• Negotiate the purchase price: Just like when buying a car, you can negotiate the vehicle’s purchase price when leasing. A lower buying price will result in a lower monthly lease payment.
• Have a higher down payment: Putting more money down upfront will reduce your monthly lease payment. 
• Consider a longer lease term: Extending the lease term. For example, extending it from 36 to 48 months will reduce your monthly payments. However, remember that this may not always be the most cost-effective option in the long run – especially if you encounter financial trouble down the line.
• Choose a less expensive vehicle: Opt for a less expensive vehicle with a lower price. Leasing a more affordable car will naturally lead to lower monthly payments.
• Negotiate fees: Some leasing-related fees can be negotiated or waived. Ask about acquisition fees, disposition fees, and other charges.
• Drive fewer miles: If you consistently drive fewer miles than the lease allows, you can negotiate a lower mileage allowance, which can reduce your monthly payment.
• Improve your credit score: A higher (or good) credit score can qualify you for much improved lower interest rates, which will decrease your lease payment.

Shop for the best lease deals: Different dealerships and leasing companies may offer varying terms and incentives. Compare multiple offers to find the most favorable lease terms before agreeing to one of them. 

Only you can determine if it’s smart to refinance a car right now. This choice will largely depend on your circumstances, finances, and wants and needs surrounding a vehicle. Should you decide it is the right time to refinance a car but don’t want to lease, why not consider a car subscription like FINN?

If you choose FINN, you will have greater flexibility surrounding the vehicle and term you choose. Although you won’t own the vehicle, you won’t be tied down to it. Subscriptions can be as little as six to 12 months, and you don’t have to put down a deposit. You also needn’t worry about insurance and maintenance costs; your monthly installment is all-inclusive.

FINN is a logical solution for those who don’t want to go through the hassle of refinancing their vehicle only to be locked into a new lease. It’s also the smart choice for those who want access to a new car without the strings attached that come with leasing.