Skip to main content

Auto Loan Basics

Auto Loan Basics

Share

It's easy to become attached to the car you're leasing, and when that happens, you may find yourself dreading the day you return the keys. An auto lease buyout loan can help.

For many drivers, the end of an auto lease can mean saying goodbye to a car you love and signing a new lease agreement. But there's another option: an auto lease buyout. A lease buyout loan lets you buy the car you're already driving from the leasing company for a predetermined price.

Sound interesting? Here's what you need to know about lease buyouts.

Take a fresh look at your lease contract

Start by reviewing your original leasing agreement to determine how much it'll cost to purchase your car. Your leasing agreement should outline the residual value, or the purchase option price. If you choose to keep the car, you'll need to pay the residual value amount, plus any applicable taxes and Department of Motor Vehicles (DMV) fees. You may also pay an administrative fee that's predetermined by the leasing company, to cover transaction costs.

Keep in mind that depending on the make, model and specifics of your leasing deal, your car may be worth more or less than the residual price on the open market. The residual price:

  • Is based on previous sale prices for that specific make and model.
  • Reflects the car's demand. A popular make or model usually commands a higher residual price.
  • Is typically nonnegotiable.

Run a simple search of used-car sites, such as Edmunds.com, Cars.com or Kelley Blue Book (kbb.com), to see how your vehicle's lease buyout price compares to the open market.

Three key lease buyout considerations

If you're happy with your car's residual price, ask yourself if these other aspects of the deal work for you:

  • Have I exceeded the mileage agreement terms? If you've gone over your lease's mileage limits, you'll be subject to per-mile penalties that can add up when your lease comes to an end. For example, if you're 10,000 miles over your lease's mileage limit, you could pay a penalty as high as $2,500. That's money that could be put toward buying out your lease.
  • Is the car in good condition? When you return your car, it'll be inspected. While most leasing companies allow for imperfections due to everyday use, above-average wear and tear can cost you. These fees can range from hundreds to thousands of dollars.
  • How much will it cost to maintain? Check out independent research, like Edmunds' True Cost to Own® reports, for your make and model. Factor these expected ongoing costs into your decision to purchase your leased vehicle.

Explore your payment options

Unless you have enough cash on hand, you'll need financing. You may be able to finance the purchase by getting a loan from a bank or other finance company, as an alternative to the dealership's financing services. As with any type of loan, it's a good idea to shop around for the best interest rate and terms. Take into consideration that the annual percentage rate (APR) on a lease buyout loan is typically higher than on a new-car purchase. Also, give some thought to your desired loan term: A shorter-term loan comes with higher monthly payments, but the upside of that is lower interest charges over the life of the loan. Terms typically range from 36 to 72 months.

For help comparing loans, use the Bank of America auto loan calculator to see how different loan amounts, APRs and terms will affect your monthly payment. Also, be sure to read about how car loans work.

Seal the deal

If you decide to obtain a lease buyout loan from a bank or other finance source, you may first need to contact the leasing company to confirm the process for ending your lease. From then on, your lender's loan officers can help you determine the loan amount based on your leasing agreement and work with your leasing company directly to facilitate the buyout. When you finance this way, you'll likely be responsible for settling any fees with the DMV.

Now that you know what's involved in an auto lease buyout, it's much easier to make a smart decision that works for your budget and lifestyle–and perhaps buy that great car you're already driving.

Share

Get more with Bank
of America auto loans

  • 60-second decision (for most applicants) with a 30-day rate lock1

  • Know how much you can afford before you shop

  • Manage all your BofA accounts in one place