Can You Refinance a Car Lease?
Leasing a car is a popular alternative to buying one. Instead of paying the full sticker price, you’ll pay just for the depreciation. However, if you still can’t afford your monthly payment, or need better lease terms, you might be wondering if you can refinance a leased car. Technically, no, because you’re actually replacing your lease. You can renegotiate the terms of a car lease, but you’re not exactly “refinancing”, a process that is reserved for loans. It is very similar, though.
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Lease Replacement or Lease Refinancing?
Lease replacement is a more apt term than lease refinancing. Refinancing requires a loan, and you’re more likely just going to replace your current lease with a different one. However, lease replacement could offer many of the same perks as refinancing: a lower monthly payment, shorter loan term, or just better terms overall.
Also, consider that there may be an early termination fee. The length of your lease was negotiated when you first leased it, and sometimes there is a penalty for turning in the car early, even if you pay off your balance. Compare this potential fee with any costs saved from your lease replacement.
The Problem With Refinancing a Car Lease
You can “refinance” a leased car, but you are essentially buying out your lease. If you refinance a leased car, you are obtaining a loan to buy the car outright. There are advantages and disadvantages to buying versus leasing, but refinancing a leased car offers an additional downside.
Leasing a car consists of making payments against the depreciation during your term. However, if you refinance or replace your lease, you’ll likely lose out on the money that you already paid into the car, since it is still depreciating. In fact, you might have to pay for the depreciation even after your return or trade out the car, depending on how quickly it depreciates and the terms of your lease.
How to Refinance or Replace a Lease
Either path has its pros and cons, but if you decide to replace or refinance your leased car, the process is straightforward.
Review Your Lease Agreement for Payoff Terms
Examine your lease agreement for the payoff information. If you cannot find it, the dealership you leased it from will be able to tell you. You need to know about any early termination fees, as well as the total price of the car itself.
Additionally, the total payoff cost will change as time goes on, so keep that in mind if you’re planning on replacing or refinancing the lease in the future. The number you calculated a few months ago might not be accurate anymore.
Shop Lease Refinance Lenders
You’ll want to shop around to get the best terms. Different credit unions, banks, dealership, and refinancing networks can give you various options. Approach them with your payoff amount and some basic information about your car, including its mileage. After that, it’s just a matter of negotiation and choosing whichever lender offers you the best deal.
Sign Lease Agreement With New Lender
Review all the terms closely. Generally, refinancing a leased car isn’t in your best interest, unless you are interested in outright owning it as soon as possible. If you need to renegotiate the terms of your monthly payment or lease term, replacing your lease is a better alternative. In either case, you’ll want to make sure that all the terms of your new agreement really do leave you in a better financial position.
Before you refinance or replace your lease, consider getting out of your car lease entirely. You might be able to transfer your lease to someone else and get a more affordable vehicle. If this isn’t an option, though, you can refinance a leased car or just replace the lease itself. However, take the time to carefully weigh your options. There are a few complications here, but taking the time now could save you a lot of money and worry in the future.
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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.
This post was updated February 28, 2019. It was originally published June 21, 2018.