If there is one lasting impact of the past year in American life, it has been the increased awareness of finding more opportunities for financial freedom. For some, that means starting a business instead of relying on others for their employment. For others, it has simply meant taking charge of their day-to-day or monthly budgets.
As Americans adjust their budgets as part of that financial reset, they have been met with some tough decisions because of the market, particularly when it comes to car loans. While rising home prices are understandably receiving widespread attention, new and used car prices have also skyrocketed in the past year. Auto loans are already the largest non-housing debt in most American households, with the average monthly car payment in the U.S. being $563 for new vehicles and nearly $400 for used vehicles.
In my experience, both in auto sales and now in the refinancing industry, it is concerning to see the amounts of debt that Americans are taking on when they need to purchase a vehicle. For so many of them, it’s not an option. They need to get to work or get the kids to school.
For drivers who lease their vehicles, it may feel like a ticking clock until they’re thrown into that scenario. So how do they avoid it? Let’s look into the benefits of buying out your lease.
Why Would You Buy Out Your Lease?
People who lease their vehicles often do so for the benefit of getting a new car every few years. While that is certainly understandable, record car prices could have an impact on their ability to do so with the same affordability. According to Kelley Blue Book, the average price of a new vehicle reached an all-time high in 2021, rising by more than $2,000 compared to last year.
If drivers are comfortable with the car they have been leasing, it may be more financially prudent – not to mention less stressful – to buy their existing car rather than risk the current market. There is also the benefit of gaining some equity in your car. When paying a car loan, you are essentially owning more and more of that asset. When leasing, much like renting in housing, you are simply paying someone else to use that asset rather than having any equity in it.
How Can Refinancing Experts Help?
When buying out an auto lease, drivers often have to purchase the car outright with what is commonly called a balloon payment. Depending on their financial situation – as well as the value of the car – that may not be feasible. In many cases, people feel the need to simply lease again to avoid that balloon payment, extending the difficult situation.
Refinancing companies can help avoid that lump-sum payment by essentially turning balloon payment into a loan. Then, your payments go towards your ownership of the vehicle, and you get to keep it rather than buying a new car at a higher price point or making a big out-of-pocket payment to purchase the vehicle.
They can also help work with lenders to find you the right terms for your situation. What monthly payment can you afford? How long would you prefer the term of the loan to be? The entire purpose of making this decision is to be comfortable with your financial outlook. Refinancing companies should take your personal goals into account when assisting with this transition.
When Is the Right Time to Buy Out a Lease?
Many drivers of leased vehicles assume that the option to purchase their vehicle only comes once the lease terms have expired. That is not the case. In situations, it is actually beneficial to buy out the lease during the lease period. Doing so could allow you to get lower monthly payments and a lower interest rate. Keep in mind, however, the risk of buying out a lease too early. With more money due on the lease, your payments could be higher than if you waited until the lease was closer to completion.
More specifically for the current auto market, now is perhaps the best time to buy out a lease. With car prices so high, you might not find a better deal than the one you have in your hands. The good news, whether buying out an auto lease or refinancing an auto loan in general, is that Americans are actually improving their credit scores despite the worries about finances.
This creates a real opportunity to set yourself up for success, avoiding the risks and costs of jumping into new purchases and improving your financial profile instead. At the end of the day, my partners and I founded RefiJet, a nationwide auto loan and lease refinance company, with the goal of helping people do just that. When equipped with the right information and guidance, the worries of the past year could serve as a catalyst for more sustainable personal finances, even beyond your auto loans.
If you think you might be able to benefit from buying out your lease, contact RefiJet today.