How Lease Buyout Auto Loans Work and How To Get the Best Rates
A lease buyout loan is what you want if you decide to keep the car you've leased. These types of loans allow you to purchase the leased vehicle at a little more than the estimated residual value, which may or may not be a good deal. It's up to you to decide. If you're debating about whether or not to keep your leased vehicle, knowing some facts about determining the buyout price and how lease buyout loans work will help you to make a well informed decision.
Calculating a Lease Buyout
The lease buyout amount is mainly based on the estimated residual value of the car. This value will be included in your original lease contract, so dig that out and find what that value is. You will then need to add the cost of the fees to transfer the title to your name, which varies by state. Contact your local DMV if you have questions about this amount. Finally, calculate the sales tax for purchasing the vehicle. Take your state sales tax and multiply it by the estimated residual value. The sum of the tax, estimated residual value, and DMV fees is the amount you will need to pay to buy out your leased car.
Is a Lease Buyout Worth It?
The estimated residual value that your lease payments were based and the actual residual value according to Kelley Blue Book, are the important quantities here. Look up your leased vehicle on KBB to determine the actual residual value. If the actual value is more than the estimated value, you will technically be getting a deal by buying out your car (remember, you'd have to pay title fees and sales tax regardless of what new or used vehicle you buy). Of course, the most important factor is how much you want to keep the car. If you love the way it handles and don't want to switch to a new one, you should by all means do so unless the discrepancy between actual and estimated value is too great.
Getting a Lease Buyout Loan
Should you decide to keep your leased vehicle, you need to finance the car with a lease buyout loan (assuming you can't just pay in full). Since you have already made significant payment with your lease payments - and hopefully built up some good credit in doing so - you likely will not have to place a down payment on the vehicle. Of course, you can always negotiate better finance rates by making a down payment, so the decision is up to you.
Lease buyout loans are available mainly through banks, though other lenders may be available as well. Lenders will want to see information about the vehicle you intend to buy—the year, make, model, mileage, estimated residual value and actual residual value. So make sure you have that information handy when you apply.
Now that you know the basics, let’s explore the steps to securing a buyout.
Build Your Credit
Making payments on a leased car is a great way to boost your credit score and make an attractive credit history for you. If you've made all of your lease payments as planned, on time and in full, you should hopefully have a nice credit score to work with if you haven't had any other financial issues. By planning on getting a lease buyout loan ahead of time, you can build incentive to make your credit score as good as it can be prior to searching for a loan.
Contact Your Dealer
The dealer you leased your vehicle with might be able to give you an auto dealer loan at a slightly reduced rate since you're planning on purchasing the car from them. Alternatively, they can suggest lenders where you can find financing plans that work for you. Car dealers benefit when you buy your leased car, so they'll be willing to help you out when it comes to financing.
Look for Discounts
If you are eligible for any kinds of special loans, like student, teacher, military or veteran loans, you'll want to make sure that your savings are reflected in your loan rate. If your leased vehicle is a hybrid or has exceptionally good gas mileage and low emissions, you may be able to get a green auto loan reduction as well. If possible, try to make a large down payment and pay back the finance amount as quickly as possible. These are all ways to reduce the rates you'll pay for an auto loan.
You can use your car dealer, a local bank or credit union or the Internet to find lenders that suit your needs. If you search online, be certain to read reviews from other sources to make sure the site is legitimate and secure before providing your personal information. If you're eligible for any of the discounts mentioned in step three, be sure you look for lenders that will take those deductions into account.
Lease buyouts are good options in some cases, but it's important to do your research ahead of time. If you decide that a lease buyout is right for you, getting a loan from a bank is a pretty straightforward process.