Lease Buyout Auto Loans

Quick Summary

Are you ready to turn your lease into a full purchase? Car customers may prefer to originally lease a car, where they pay monthly payments for a set amount of time (for instance, one to two years) while driving the car, then decide if they want to buy it or return. If they decide to purchase it, they need to pay for the rest of the market value of the vehicle – which is where lease buyout loans come in.

These loans help bridge the gap between leasing and ownership if you lack the necessary cash to make the transition. Often, the same company that arranged your lease will offer information on how to perform a lease buyout and find the right type of loan if necessary. While the addition of the lease contract makes this situation a little more complicated, the loan itself is typically a traditional car loan without many surprises.

Advantages & Disadvantages

Advantages:

-You know what you want. A lease buyout allows you to test a vehicle for an extended period of time and get fully used to it before deciding if you want to keep the car for years to come, or switch to a new model. This often depends on what stage of life you are in and what plans you are making for the future.

-It makes the lease worthwhile. Without a lease buyout, you are essentially renting a car – which means you have a year or so of making payments without seeing any long-lasting value at the end. The lease buyout adds an asset to your name.

Disadvantages:

-Buyouts aren't always good. A buyout isn't always the right choice. Depending on your lifestyle, the depreciation rate of the car, and the loan terms, you may not be getting a reliable deal for the money.

-Lending can get complicated. Sometimes you may need to go to a third-party lender for a car loan to active the lease buyout, which can become tricky and time-consuming for less experienced borrowers.

What Should I Know About Buyout Auto Loans?

Lease buyout loans come in a couple different forms: You can choose to either buy out the lease while it is still ongoing, or at the end of the lease period. Generally, buying out at the end of the lease is easier and comes with fewer surprises. How much you will have to pay either way depends on the predicted depreciation rate of the vehicle compared to the actual depreciation rate during the lease term. Yes, it can get a bit complicated, which is why financial advice and careful research are necessities here.