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4 Situations When You Should Consider a Car Lease Buyout

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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If you’re nearing the end of your lease, you’re probably considering a lease buyout. But is that to your best advantage? Some easy math could point the way. We’ll break down how a lease buyout works, when it is — and isn’t — to your advantage and whether a lease buyout is worth it.

How a lease buyout works

Purchasing a lease is called a buyout whether you pay in cash or get a lease buyout loan. The car’s residual value, listed in the original lease contract, is its buyout price. You could also find the buyout price by calling your leasing company or looking at your online lease account.

Once you know its price, you could simply pay the amount in cash to the leasing company and have its ownership officially transferred to you or line up an auto loan. Not every auto lender offers a lease buyout loan, which is considered different from a new, used or refinance car loan.

What to consider before buying out a lease

There are some emotional components to buying a car –– feelings of attachment to your leased vehicle versus the desire to purchase a shiny, new one, for example. You’ll have to take those into account on your own, but we can help with the money math.

Affordability

Check whether buying your leased car is affordable by using an auto loan calculator. One of leasing’s biggest appeals is a low monthly payment. If the vehicle is still worth a lot, the buyout loan payments could be more than you expect.

Price vs. value

The residual value is an estimate of what the car will be worth at the end of the lease. The car’s actual value may be more or less. If the car is worth more, then your residual value is effectively a discounted price! To know whether you’re getting a good deal, compare what you’d pay to buy the lease versus what the car’s worth. We’re not going to take taxes into consideration yet.

Lease buyout price = Residual value + any excess mileage and wear feesvs.Lease value = Current Kelley Blue Book price

Example of a good lease buyout

If the residual value is $19,000, you have $300 in excess wear charges and the KBB value is $21,000, then you’d be getting a good deal, paying $1,700 less to buy the car than what it’s worth.

Example of a bad lease buyout

Imagine your residual value is $15,000 and you have $800 in mileage overage fees. But the car is only worth $13,000 according to Kelley Blue Book. In this case, you’d be paying more than the car is worth to buy it, a $2,800 premium.

You could do a more specific analysis comparing the lease buyout to a vehicle you may want to buy instead by looking at the lease buyout price versus the new vehicle price, including any rebates you may qualify for and any taxes.

Potential damage

Another way the car could be worth less is if it were damaged while you leased it. If it got hit in a car accident or a storm, it will be considered less valuable because it was damaged, even if that damage was repaired. The negative impact on its value (and thus its price) only affects the owner — don’t buy it and become the owner.

Taxes and government fees

In a lease buyout, you may have to pay taxes and fees, just as you would if you bought any car. Yes, you may have already paid taxes on it when you first leased the vehicle, but the official owner was the leasing company, not you. And now the vehicle is switching owners. The title and registration will change, meaning you might have to pay such expenses (again), depending on your state. However, you would wind up paying the same type of fees if you get a new lease or purchase a different car altogether.

Manufacturer fees

A few cents per mile can add up quickly. The same can be said of wear-and-tear charges. If the manufacturer is going to charge you for excess mileage and wear-and-tear damage to the tune of a few thousand dollars, you may be better off buying the car to skip the fees. If you manage to not incur any or have a low dollar amount of fees, it may not matter as much.

Whether the car matches your needs

Maybe you moved to Chicago and need a car with AWD or your growing children will find the back seat of your leased car to be a smidge constraining soon. If such a scenario applies, take advantage of your lease end to get a different vehicle that fits your needs not only now but for the foreseeable future.

Alternatives to buying your lease

Leasing companies offer a few options at the end of a lease, depending on the company: Return the car, replace the car with a new lease or purchase, re-lease the car or buy the car. If none of those options sound great, there’s another avenue in which you could skip the fees and not buy the car yourself: a third-party buyout.

Advertise the car for sale or find a friend who wants to buy it and then that person could do the lease buyout through you. Some manufacturers will facilitate a third-party buyout. And, depending on your state, you may be able to buy out your lease, turn around and sell it within a few days and not have to pay the taxes. If you decide to do this, be sure to check with your state’s Department of Motor Vehicles, your leasing company and a dealer or manufacturer to be clear about the laws and processes you have to follow.

Is a lease buyout worth it?

A lease buyout could definitely be worth it. You might want to buy the car if you have a great price on it compared with what it’s worth or if you incurred high fees. You might want to skip out on purchasing the vehicle if it is worth less than its residual price or it was damaged.

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The Best Auto Loans: New & Used Car Loan Rates

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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Reviewed By

Many people walk onto dealership lots confident in what car they want to buy, but clueless about how they are going to finance it. Savvy buyers arrive with their own preapproved car loan. To help you find yours, we looked at thousands of successful applications and researched the best auto loan rates around to come up with this list of top lenders.

*May include autopay discount

 

How we chose the best auto loan rates

We examined thousands of closed loans in Q1 2021. We wanted to know: 1) which lenders consumers chose most often, and 2) which offered the lowest average annual percentage rate (APR). We also looked at the advertised starting car loan rates of large, national lenders to compare.
 

Best auto loan rates

PenFed Credit Union: Best car-buying and financing service

Penfed Car Buying Service
APR

As low as
0.99%

Terms

36 To 84

months

Fees

No Origination Fee

SEE OFFERS Secured

on PenFed Credit Union’s secure website

Pentagon Federal Credit Union offers the lowest car loan APR we’ve seen that’s not tied to an auto manufacturer. Despite the name, you could join the credit union with zero military ties. Its car-buying service is free and nationwide through car-shopping website TrueCar. Dealerships pay a fee to TrueCar, which helps keep APRs low, but it’s possible you could find lower car prices at other dealerships of your choosing.

Pros and cons

Not everyone will want to use the car-buying service and thus not everyone will qualify for the lowest starting rate. The lowest possible rate without the car-buying service however is still one of the lowest out there. Those APRs start at 1.79% for new cars.


Navy Federal Credit Union: Best auto loan rates for those with military affiliation

Navy Federal CU
APR

1.79%
To
17.99%

Terms

12 To 96

months

Fees

No Origination Fee

Navy Federal advertises its lowest auto loan rate at 1.79% APR for new, used and refinance car loans, but active-duty and retired military members who use direct deposit could get a 0.25 percentage point discount, making the absolute lowest rate 1.54% APR.

Pros and cons

Besides car loans, Navy Federal has excellent prices on other car products, such as guaranteed auto protection (GAP), for which it charges $299. Membership requirements are strict, however. You must have a connection to the U.S. military to join Navy Federal.


LightStream: Best auto loan rates for borrowers with prime credit

LightStream
APR

2.49%
To
20.49%

Terms

24 To 84

months

Fees

No Origination Fee

*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.49% APR with a term of 3 years would result in 36 monthly payments of $292.98.

LightStream auto loans are unsecured, meaning there are no restrictions based on the vehicle’s age, mileage, make or model. The 2.49% APR applies to any auto loan: new, used or refinance. This rate could possibly go lower — LightStream promises to beat any qualified offer from another lender by 0.10 percentage points.

Pros and cons

Because LightStream auto loans aren’t secured by the car itself, they’re counted as a type of personal loan and require strong credit for the lowest rates. Borrowers who prefer in-person banking might find the LightStream experience a bit hands off — it’s an online lender that handles communication mostly through email. That could be a pro if you’re looking for minimal contact. LightStream stands behind its service with a $100 customer satisfaction guarantee.


Consumers Credit Union: Best for open membership requirements

Consumers Credit Union
APR

As low as
2.24%

Terms

84

months

Fees

No Origination Fee

SEE OFFERS Secured

on Consumers Credit Union’s secure website

Joining Consumers Credit Union requires a one-time $5 donation to the Consumers Cooperative Association. You do not need to meet any other requirement to join.

Pros and cons

The lowest rate advertised includes a 0.50 percentage point discount for making automatic payments from a Consumers CU account. The discount is halved if the automatic payments are from another account.


Bank of America: Best for in-person banking

Bank Of America
APR

As low as
2.39%

Terms

12 To 75

months

Fees

No Origination Fee

SEE OFFERS Secured

on Bank of America ’s secure website

As a national bank, there are no membership requirements and several types of car loans here. Bank of America auto loans include car loans for new, used, refinance, lease buyout and private-party purchases.

Pros and cons

Despite the wide range of car loans, Bank of America does have a few restrictions. Loan amounts start at $7,500, which might rule out an older used car you want to buy and vehicles must be no older than 10 years with 125,000 miles or fewer. But if those restrictions aren’t a problem, the fact that Bank of America is a well-recognized brand could inspire confidence.


Capital One: Best auto loan rates for prime and subprime credit

APR

2.99%
To
34.99%

Terms

12 To 84

months

Fees

No Origination Fee

SEE OFFERS Secured

on LendingTree’s secure website

Capital One offers prequalification through its Auto Navigator feature, which allows you to shop for a vehicle and then get an estimate of your auto loan with only a soft credit pull. Unlike other lenders that specialize in working with those with excellent or poor credit, Capital One offers competitive rates for both types of borrowers.

Pros and cons

Capital One only offers car loans through dealers; you can’t get a direct auto loan offer. The good news is it’s easy to find out which dealers are approved and search their inventories. The downside is that a prequalification isn’t the same as a car loan preapproval, a firm APR offer you can take anywhere.


Auto Approve: Best for refinance car loans

APR

As low as
1.90%

Terms

12 To 84

months

Fees

No Origination Fee

SEE OFFERS Secured

on LendingTree’s secure website

Auto Approve offers refinancing and lease buyouts for cars, trucks, SUVs, motorcycles, boats, RVs and ATVs. When you apply, you’ll see potential car refinance offers from multiple lenders without impacting your credit. Once you choose, the lender will do a hard credit pull and give you an official offer for you to accept or reject.

Pros and cons

AutoApprove specializes in refinancing; if you’d like a loan to purchase a vehicle, look at the other lenders on this list. AutoApprove also doesn’t have a public list of its lender partners. If you want to apply to a specific lender, such as a bank or local credit union, go ahead and apply to them directly as well.
 

How to shop for an auto loan

Before you apply

1. Look up your credit score
Lenders sort applications into credit tiers. Tiers vary by lender, but in general, the higher your score, the lower your interest rate. If your credit score isn’t where you’d like it to be, it would be in your best interest to correct any mistakes on your credit report and/or improve your credit score before applying for a car loan.

If you don’t have the best credit score, don’t sweat too much. Your rate is determined by many factors, including your income, the loan term and the car itself. You could potentially later refinance your bad credit auto loan to a lower rate, after your score improves.

2. Use an auto loan calculator to determine how much you can afford
An auto loan calculator can help you set a budget that includes your monthly payment plus taxes and fees. Sales tax, registration and dealership fees typically add up to about 8% to 10% of the car’s price. If you’re wondering how much to put down on a car, read more about the 20/4/10 rule.

How to apply

3. Get a preapproval, not a prequalification
Dealers can — and often do — raise customers’ auto loan APRs by as much as 2 percentage points for their own profit. That’s why it’s important to get your own offers directly from lenders of your choice. Remember, there are two types of offers, preapproval and prequalification.

A preapproval is a firm offer — including loan amount, term and APR — by a lender that performs a hard credit pull. Prequalifications are estimates based on a soft credit pull or no credit pull. The more offers you get, the more choices you’ll have.

After you sign

4. Make your payments on time
On-time payments are a hugely important element of a strong credit score. Make your payments on time or ahead of time, which may reduce interest fees. Talk to your lender if any problems come up and you need a payment deferral.

5. Keep an eye on refinance rates
Auto loan rates change often and you may find that due to your credit score improving or the larger financial environment, you could get an even lower auto loan rate if you refinance.

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What to Bring When Buying a New Car

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

You researched reliability and value, road tested a few vehicles and checked your credit — you’re ready to drive a new car home. But before you make that last trip to the dealership, you should know what to bring when buying a car. This list of documents you need to buy a car can save you time, money and aggravation.

What do you need to buy a car?

There’s a stack of paperwork that’s part of the process of buying a car. You’ll need to provide several pieces of personal information, particularly if you plan to finance your vehicle through the dealership. Take some time to gather the proper documents to avoid extra trips.

License and proof of insurance

Your current (unexpired) driver’s license proves your identity and clearance to drive one of the dealer’s cars off the lot. Non-citizens may need their passport and visa for identification plus a local driver’s license or international driver’s permit.

You probably already had to show your license to test-drive a car, but the dealer and your financing company will now want to make sure you have auto insurance, too. Your insurance card from a trade-in or other car you own will probably do — insurance companies usually provide a grace period where the new car is covered until you add it to the policy. Do this as quickly as possible once the purchase is complete. You’ll probably have to show proof of insurance for that vehicle when you register it with your state or local government.

Compare rates: If you don’t already have auto insurance, shop around for the best rates before you go to the dealer. Most providers can supply you with temporary proof of insurance if you have the car’s vehicle identification number (VIN).

Form of payment

Whether you’re paying cash for the vehicle or financing it, it’s wise to research your options before you sit down to make the final deal at the dealership. Dealers are allowed to increase your auto loan’s annual percentage rate (APR) for their own profit. The only way to know what rate you deserve is to do your own research about the different payment methods available to you:

Preapproved auto loan

A preapproved auto loan tells you the APR you will get and the length of the loan term. With an offer in hand, you can judge whether the dealer’s options are better (or worse) choices. Plus, if you don’t want to buy from one dealer, you can take your preapproval with you to the next one.

Preapproval vs. prequalification: The preapproval or prequalification process may use what’s called a soft credit check or a hard credit check. A soft check shows what rates you may qualify for without hurting your credit score, but it may not be as accurate as a hard inquiry, which does impact your credit. Ask potential lenders what method they use and remember: you’ll most likely have to go through a hard pull at some point in the car-buying process. Credit bureaus allow a 14-day shopping window where all pulls count as a single inquiry. The drop to your credit score is typically minor and temporary.

A preapproval may come in the form of a blank check that you finalize with the dealer. You’ll take the check to the finance office, where the dealer will fill in the final amount and submit it to the lender. Or, you can go to a bank or credit union branch once you have the final amount.

Dealership financing

To apply for financing at the dealer, you’ll need the same information it takes to apply for a preapproval online including your:

  • Social Security number
  • Proof of income or employment status and history, such as pay stubs, particularly if you’re starting a new job or have a low credit score.
  • Residence status – do you own or rent? You will need to provide the monthly cost of your rent or house payment.

The dealer may ask for references based on your work history or a personal reference from the closest relative that does not live with you. Financing companies will use your Social Security number to check your credit score and credit history.

If you’re self-employed: You may be asked to provide bank statements, canceled checks or tax returns as proof of income. If you’re claiming other income sources such as child support, alimony or retirement income, you’ll need documents to back that up as well.

Personal check

A personal check may be an acceptable form of down payment for a car or to buy a low-cost used car outright. For example, a private seller may be willing to take a personal check.

The dealership may ask you to verify that you have enough money in the account to cover the check. You could call the bank or use the bank’s mobile app to show your account balance. A dealership may prefer a cashier’s check, certified check or money order over a personal check. These types of checks verify there is enough money in the account to guarantee payment.

Credit cards

Dealers are usually reluctant to accept credit cards for the full amount of a car because of the merchant card transaction fees, but you may be able to charge a down payment of a few thousand dollars. There might be an advantage to doing so in the form of reward points and other incentives — for example, American Express cardholders who use its car-buying service are eligible for auto repair and insurance deductible benefits worth up to $2,000.

Credit cards charge high APRs, so unless you are able to pay off your purchase immediately, or have a low promotional rate, be wary of swiping plastic for such a large amount.

Debit cards

Check with your bank on the maximum amount you can purchase with your debit card. It’s usually more than the daily cash withdrawal limit, but may not be enough for a down payment on a new car. You could call your bank to ask for a short-term increase in your normal daily purchase limit. If you want to use your debit card, set things up with your bank ahead of time rather than while you’re sitting in the finance office at the dealership.

Cash

Dealers typically make more money when you finance through them, so they prefer those deals. If you’re thinking of paying with actual currency, keep in mind the dealer must report cash transactions over $10,000 to the IRS. Cash will be more welcomed for a small down payment. Dealers consider cashier’s checks and money orders for the full amount to be cash transactions because there’s no financing involved.

Trade-in information

To trade in your vehicle, you’ll need to bring these essential documents to avoid any delays.

Registration

Must be valid and current.

Title and payoff information

Whether you have the title depends on your state – some states retain the title until a car is paid off; others send you the title with a note that there’s a lienholder.

If the car is paid off, you should have the title or it will be sent to you if you made the final payment within the last few days. Some states send a lien release form that you take to your state’s Department of Motor Vehicles (DMV) or the dealer to get a new title with the finance company’s name removed. At least 19 states track titles and liens electronically so your information is always up to date.

Lost title: If you have lost the title, apply for a duplicate with your state’s DMV. Depending on your state, a dealership acquisition form or a transfer bill of sale may work instead.

Don’t forget to sign over the title: When you own the car with another person, check to see if the title and registration is written with “or” between the names or “and.” If it’s “or,” only one person is required to sign the title. If it’s “and,” both signatures are required, so make sure both of you go to the dealership to avoid delays in the paperwork. When one person isn’t available, you may be able to have them sign a power of attorney giving you permission to sell the car.

The loan payoff is the amount you still owe on your trade-in, unless you’ve paid it off. Bring your loan account information including the payoff amount. You or the dealer may need to call the lender to get the most accurate figure.

Rebate qualifications

If you want to take advantage of dealer rebates and incentives, you may need to verify your military or student status, for example. These types of discounts may be in addition to or in lieu of deals that depend on your credit profile. Be sure to check the manufacturer’s website for the latest offers and eligibility requirements. To get these discounts you usually must use the manufacturer’s finance company.

Active-duty military

You’ll need to verify your status with a military ID and/or your leave and earnings statement, which also can be used to verify income. Some manufacturers are adopting government-approved online services like ID.me to prove your identity. Sign up online and receive a discount certificate to take to the dealer. The discounts are usually available to immediate family members as well.

Retired military or separated from service

Verify your veteran status using a current military or retiree ID card or a DD Form 214, the discharge papers you received when leaving the military.

Graduate/student

Bring a student ID or other documentation to show you’re a current college or graduate student or have graduated from a two- or four-year college within the past two years.

Loyalty/conquest buyers

You may be able to get a discount for staying with the same brand of car, or switching from a direct competitor. In either case, you’ll need to bring proof of ownership and, in some cases, proof of active financing or leasing status.

Buying a car out of state

Many dealers will start the registration process for you even if you live in another state. If they don’t, or if you’re buying from a private seller, you may have to do more of the work to get your new car home and properly registered.

1. Obtain temporary tags

Your new car needs license tags before you take it out on the road. A dealer usually provides a temporary tag, giving you time to register it in your home state. If not, or you’re buying a car from a private seller, you’ll have to go to a local DMV to get one or ship your car home. In a few states, the license tags stay with the car, so you could drive the car home. Be sure to check local regulations before you buy.

2. Register the car

You’ll need to register your new car with your state’s DMV within a specified time period.

To do that, you’ll need some documents, which vary by state and locality. Typically, you’ll need to fill out a vehicle registration application, and an application for a certificate of ownership for bringing in a vehicle from out of state. You may also need:

  • Identification
  • Title or bill of sale or invoice
  • Proof of insurance
  • VIN inspection
  • Safety inspection if required
  • Current odometer reading
  • Emissions certification if required
  • Proof of tax paid via dealer
  • Lien holder information

3. Pay any necessary fees

If you’re buying a car out of state, you should not have to pay that state’s use or property tax. Instead, you’ll pay that in your home state. You’ll also pay registration and license fees to the state as well as any local municipality fees and taxes.

FAQs about what to bring to the car dealership

Do dealerships register cars for you?

One of the advantages of buying from the dealer (versus a private seller) is that most are authorized to issue temporary registration and tags until your permanent ones arrive in the mail. Check with your local DMV to see what dealers can and cannot do in your state.

What documents do you need to buy a car?

At a minimum, you’ll need your driver’s license and proof of auto insurance. If you plan to finance through the dealership, you’ll need to bring the documents proving residence, income and more that we describe above. Bringing your own auto loan offer will make the process faster — your credit union, bank or online lender has already reviewed your paperwork. either in person or online.

Can you take a car home the same day you buy it?

Yes, if you’ve come to the dealership prepared. Otherwise, not having the right documents or signatures could slow down the process.