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What are Lease Buyout Loans?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 September 2016
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Lease buyout loans are loans that are extended to consumers for the express purpose of paying off a lease obligation. Loans of this type are often used by people who have a leased vehicle and wish to assume full ownership of that automobile once the lease has reached its maturity date. Typically, lease buyout loans will make use of the purchased asset as collateral for the debt, although in some cases the buyout loans may be extended as unsecured debt if the lender considers the debtor to be an especially good credit risk.

With auto financing, the option of leasing is often an excellent approach. Buyers are able to lease a vehicle for a specified period of time, making a monthly payment that is often competitive with making car payments on a loan. At the end of the leasing period, the buyer has the option of returning the leased vehicle to the owner, or purchasing the car outright at a reduced price. When the buyer chooses to exercise this second option, using a loan for a lease buyout is typically a good idea.

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One of the chief benefits of lease buyout loans is that using this approach to buy a lease means the consumer does not have to dip into savings or liquidate other assets in order to come up with that final payment. Since the final purchase price of the leased vehicle is normally below the current market value, lenders generally extend highly competitive rates for lease buyout loans. In some cases, the loan payments will be significantly less than the former lease payments, allowing the debtor to actually have a little more money each month to devote to other budget line items.

There are situations in which lease buyout loans are used to prevent the consumer from incurring the penalties and charges that result from a failure to maintain the leased vehicle according to the terms of the lease agreement. In most cases, those terms require that the mileage for the vehicle is kept under a certain amount for the duration of the lease, and that the vehicle is maintained in terms of regular tune-ups and general maintenance. When the maintenance does not occur, the assessed penalties can be quite severe. By choosing to use a buyout loan to purchase the vehicle outright, the consumer gets to keep the car, eliminating the need to replace it with a different or newer model, and avoids incurring the penalties.

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