Can One Refinance a Car Lease Loan?

Car leases can be refinanced into loans.

Car leases can be refinanced into loans.

While leasing a car is very different from getting a traditional loan to buy a car, it shares one common feature -- it's a form of financing. Like any financing, you can pay your lease off whenever you want. However, to pay it off, whether with cash or a refinance, you'll have to pay off everything you owe. Given the way leases work, this might be challenging.

Car Lease Basics

In a car lease, you only pay for the portion of the car's value that you use. If you lease a car for three years, and over three years, its value drops from $20,000 to $12,000, you will just have to pay off the $8,000 in value that you use up. The fact that you're paying for less of the value of the car with a lease than with a purchase almost always gives leasing a car a lower monthly payment.

Lease Refinance Challenges

Given that cars typically lose value right when you drive them off the lot, you're probably going to be upside down on your lease . This could make refinancing it challenging. For instance, if a $20,000 car loses $3,000 in value right when you buy it, you're already down to $17,000 in value on the day you purchase it. Over a three-year lease period, for example, that car could lose around $8,000 in value, spread out over 36 payments that average out to around $222 a month. The problem with a lease is that, in the first month, while the car loses $3,000 in value just from being bought, you only pay off $222 of that loss. This builds a lot of negative value into the car that you may not catch up to until you pay the lease off. Adding insult to injury, many leases have additional termination fees that make them even more expensive to pay off.

Replacing a Lease

Once you've called your leasing company to get your lease payoff amount, you can shop it between different banks or other car financing companies to see what options they can offer you. While a lease refinance may be hard to find, you can refinance your lease with a car refinance loan. While the impact of doing this on your payment can vary, it will give you the benefit of owning your car and no longer having to worry about excess mileage or wear-and-tear charges.

Other Alternatives

If you are looking to get out of a high lease payment, you may want to consider giving your leased car up and getting a new one. While you could lose a lot of money if you trade it in, you can also find someone to take over your lease payment. Some services will help pair you up with someone who wants your car and is willing to take over your lease.


About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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