How Soon Can You Refinance a Car Lease? All You Need to Know about Ending Your Lease

There are two main ways to leave a car dealership in a new vehicle: leasing and buying. Buying a car generally requires financing from an outside lender through a car loan, whereas leasing allows you to make a financial agreement with the dealership or leasing company to drive a vehicle for a certain amount of time while paying for that privilege.

A lease may also have other terms, such as a mileage restriction and maintenance requirements, which you can negotiate with the dealership or leasing company.

Taking on a car lease is a financial responsibility with a set payment and term, and you typically can’t renegotiate it once you’ve signed the contract.

However, you can do a lease buyout where you convert your lease into a purchase and take out an auto loan for the vehicle’s cost. This is a form of refinancing the lease.

Looking to buyout your lease? Easily compare rates from lenders below.

Pros and Cons of Leasing a Car

When thinking about leasing a car, you should know your financial situation and short- and long-term goals and consider the pros and cons to ensure it’s right for you. The benefits of a car lease include:

Flexibility: You can move on to a new vehicle much faster than a purchaser because the terms of a lease are usually shorter.Smaller financial commitment: The monthly payment can be considerably less than a car loan. If a down payment is required at all, it can also be lower than it would be with a purchase.Maintenance coverage: Typically, the dealership’s maintenance plan will cover your leased car for all services — and the dealership is motivated to keep the car in perfect working condition to sell as a certified pre-owned vehicle.Dealer-provided insurance: As the owner of the leased vehicle, a car dealership may carry gap coverage on the vehicle. Although your insurance deductible would still apply for the accident, gap coverage can help you walk away from a lease owing nothing more should the vehicle be totaled during the lease.Purchase option: At the end of a lease, you may have the option to purchase the vehicle, often for less than it would be advertised as a pre-owned car. In this instance, you may have the opportunity to buy a car for less than the market value that has had only one driver and dealer-provided maintenance.

Leasing a car can be a great option if you’re unsure what kind of vehicle you would like to drive long term or if you want to have a newer car more often. By leasing, you can try out several vehicle brands, body styles, and packages for an extended period before deciding what you like best.

However, there are also some potential cons of leasing a car, including:

Restrictions: Car leases come with mileage limits, usually an annual mileage cap, that can be restrictive. Typically, a lease will have a cap of 10,000 to 15,000 miles (the average American drives just over 13,000 miles a year). If you exceed the mileage cap, you will incur financial penalties from the dealership.Fees: A dealership can charge fees for causing excessive wear and tear, waiting too long for required maintenance, and putting too many miles on a vehicle. Since the dealership is the vehicle owner and has final say on the lease agreement, you’re left in a tough spot subject to dealership approval. Fees can add up at the end of a lease, especially if the dealership feels you mistreated the vehicle in any way.Contract terms: Once you agree to a lease, the contract is set for the life of the lease. Breaking a lease requires buying it out by taking on the remaining balance as a car loan, transferring it to another lessee, or ending it altogether and paying early termination fees.Unrealized financial gains: When buying a car with a car loan, you can build equity that can result in a cash-out refinance, which is not possible in a lease. Losing equity and having to return the vehicle at the end of a lease can leave you in a worse financial position than when the lease began.

When you’re considering a lease, it is important to factor in both your current financial situation and the one you may be in at the end of the lease. After the lease term, your credit situation could be completely different, causing you to have a more difficult time getting a new lease or a car loan.

Can You Refinance a Car Lease?

Unlike a car loan, you can’t refinance the original lease in most cases. A lease is an agreement with a dealership or leasing company to drive a car for a certain amount of time at a set monthly price.

Due to the nature of the agreement between a lessee and a lessor, you can’t adjust your lease partway through for lower monthly premiums or a better interest rate like you might do with a refinanced auto loan, so you can’t technically refinance unless you decide to do a lease buyout.

If you decide that purchasing the leased vehicle is the path you want to take, you can start looking into lease buyout loans. These are auto loans that specifically aim to help you fund the cost of buying out your lease.

By doing this, you will be able to spread out the payments of your loan over a longer time period, saving you money each month. In addition, you may have a small reprieve in payments, as your auto loan may not require payments for the first few months, sometimes as long as 90 days, as the loan takes effect.

Taking on a lease buyout loan allows you to build equity in the vehicle and, eventually, take ownership of the vehicle with no monthly payment. While technically you are taking out an entirely new loan and buying out your lease, some people might call this a refinance since you are changing your monthly payments to pay toward your lease buyout loan rather than the original lease.

When Can You Refinance a Car Lease?

A lease buyout typically occurs at the end of a lease, but you can also choose to end your lease early. If you want to buy out your vehicle before the end of the lease, you will typically need to pay the remainder of your monthly payments on top of any early termination fees.

When applying for a lease buyout loan, make sure to take these additional fees into consideration. With this in mind, you can technically refinance your car lease, or buy it out, at any time as long as you’re prepared with the necessary loan.

How Do I End a Car Lease Early?

A car lease can be a great way to have a new car every few years without the hassle of buying a vehicle and selling or trading it to get another. Depending on the term of the lease, you could be in a new car every two years without a huge financial commitment.

Even though a car lease has a shorter term than an auto loan, there are still instances where you might want to end the lease early, either to walk way from the car and its payments or to buy it outright because you want to keep it. There are three ways to end your lease early:

Return the Car Early

Returning a car lease early can come with early termination fees, sometimes hundreds of dollars, as the car dealership or leasing company is now saddled with a vehicle that was bringing in a monthly payment.

They are usually sold as certified pre-owned vehicles, but they can sit on the lot unsold, which is why the dealership may charge high fees to end the lease early.

Transfer the Lease

Transferring is the process of handing off the lease to another lessee, but this comes with fees if the dealership permits it at all. There are services to help you find an interested party to transfer your lease.

Buy Out the Lease

The third and most common way to end a lease early is to buy the vehicle outright. The lease payoff amount includes the vehicle’s residual value, any remaining lease payments, fees, and taxes.

At that point, you would apply for an auto loan and make monthly payments to the financial institution offering the loan.

When Should I End a Car Lease?

As a lessee, you have an obligation to make payments throughout the term you and the dealership or leasing company agreed to for the duration of the contract.

However, ending a car lease through refinancing or termination is sometimes the right move based on your financial obligations or the market value of the car.

While there is no perfect time to end a lease, there are certain factors that can make it more advantageous for you to walk away from the contract:

You want to own the vehicle: If you’re looking to build equity and own a vehicle, ending a lease and taking out an auto loan to buy it is a logical step. Much like renting versus buying a home, making payments on a loan can provide a great return — plus an eventual end to the payments once you pay the loan off.You want smaller monthly payments: By taking out an auto loan that extends beyond the term of the lease, you would most likely have a smaller monthly payment on the same vehicle.Your credit score has increased: A significant change in your credit score can make it more worthwhile to end a lease in favor of another lease or an auto loan with better terms.The buyout price of the lease is less than the market value of the car: If you find yourself in a situation where the price to buy your lease outright is less than the car is worth on the market, it is financially advantageous to purchase the vehicle to keep or sell. The equity, or difference between the purchase price and the value of the vehicle, can be realized with a purchase of the car and a quick sale.Returning the lease will trigger extra fees: As a lessee, you have certain requirements built into the lease that you must meet, or else you will be charged fees at the end of the lease. These requirements typically involve maintaining the vehicle, driving only a certain amount of miles, and avoiding excessive wear and tear. To avoid fees for not meeting the requirements, you can purchase the leased car via an auto loan or cash.

Getting a car is a major decision with a significant monthly payment. When considering a lease or purchase, it is important to think about your short- and long-term financial goals.

The flexibility of a lease may fit better into your current financial situation, but the equity built up in a vehicle purchased with an auto loan could be more advantageous in the long term. Whichever option you choose, you can make a sound financial decision that will benefit you for years to come.

Finance & Insurance Editor

Ashley Donohoe has written professionally about business and finance since 2010 and has served as an expert reviewer since 2017. Her work has appeared on major websites such as Money.com, The Balance, and the Miami Herald. Having run her own business, she has broad expertise in taxation, financial management, accounting, and investments. Her educational background includes a B.S. in Multidisciplinary Studies, Master of Business Administration, and certifications in accounting and taxation.