Yes, you can convert your car lease to finance. Most lease contracts have a buyout option that allows you to buy the car either during the lease duration or at the end. But if you decide to convert the lease to finance before the lease expires, you end up paying more than if you waited for the lease term to end. This is because, in addition to paying the buyout amount, you will have to pay lease termination fees and the remaining monthly lease payments.
No matter what point you decide to convert, you should do your math first to ensure the decision makes financial sense.
How Does It Work?
When signing your lease contract, the lessor provides the buyout option by setting an estimated residual amount at the lease-end. This is the amount you would pay to own the car should you decide to keep it. There are no restrictions on how to pay for the vehicle in the event of a buyout. You can either pay for it in cash or get a loan.
The buyout amount may be lower, equal, or higher than the car's market value, depending on several factors. It makes more economic sense to convert the lease to finance only if the buyout price is lower or equal to the car's market value. But in some cases, buying out the lease would still be a financially sound decision even if the car's buyout price is higher than its market value.
For instance, assume you decide to return your leased car (which has a higher buyout amount than its market value) and buy a second-hand vehicle that has the same market value. If you happen to have additional mileage and wear-and-tear charges that you need to pay at the end of the lease contract, the total amount you end up spending on the two transactions may come close to your lease buyout amount. Note that you are retaining the car in the case of a buyout and so you won't have to pay the additional mileage and wear-and-tear penalties.
All the same, whether the buyout amount is lower, equal, or higher than the book value of the car, you can find auto refinancing lenders to finance the transaction.
How to Determine Whether to Convert Your Car Lease to Finance
As earlier mentioned, your decision to convert your car lease to finance should make financial sense. First, you need to calculate your total obligations should you decide to keep the car. Assuming you're ending the lease mid-term, this could include the lease termination fee, the remaining monthly installments, the residual amount, and any other charges stipulated in the contract. If you're converting at the end of the lease, you only need to consider the buyout price.
Then estimate your leased car's market value to see how much you would pay for a similar used car. If the car's buyout price is lower or equal to its market value, converting would be a sound decision.
However, there are other factors you need to consider before settling for the decision. Loans for used cars have higher interest rates than the average. So you may want to weigh your options - do you want to really keep the car and incur the expensive financing, or should you sign another lease contract for a new car.
You should also factor in the cost of maintaining and servicing the car. If you have kept the car in excellent condition and all the necessary repairs and replacements have been done before the lease ends, you may want to buy it out instead of getting another second-hand car out there whose condition you're not sure about.
After doing the calculations and weighing the conditions, you can then decide whether to convert the car lease to finance, get a similar cheaper used car, extend the lease, or sign another lease contract for a new car.
Whatever the decision, you can talk to us at Wilmar Inc and learn more about our leasing solutions. Then rest assured we will work in your best interest.
