If you want to finance your leased car, you must purchase it from your leasing bank. For this reason, the process is considered a first-time finance, not a refinance, which implies transferring a loan from one lender to another. You may finance your leased car at a credit union as long as you can obtain loan approval.
Benefits of Using a Credit Union
Credit unions are local to an area, serving communities as nonprofit organizations. Auto loan rates and various banking fees are often lower at credit unions than at banks. For this reason, you may obtain a lower auto loan interest rate than at other lenders in your area and save money on your overall loan payback amount and monthly payment. To obtain a loan at a credit union and to learn more about credit union incentives, meet with a loan adviser to discuss your options.
Loan-to-Value Ratio
Credit unions, just like most auto loan providers, base your total loan amount on a vehicle's loan-to-value ratio. Used car values are determined by a credit union based on a vehicle's year, make, model, features and mileage. After the credit union determines your vehicle's loan value, it then determines a percentage that you can borrow of that value. Each credit union has its own loan-to-value threshold, so you may obtain an approval for more than 100 percent of the vehicle's value or less. If your vehicle's value is less than your leasing bank's buyout amount, you may have to provide a down payment to obtain your auto loan.
Application Process
Credit union loan approvals or declines are not instant, so expect to wait up to five business days for a decision on your loan application. Besides your loan-to-value ratio, the credit union will also asses your debt-to-income ratio, which is the amount of money you have coming in (verified by proof of income) versus the amount of money you pay out (verified by your credit history). Once approved, credit unions use a tier system to determine your loan's interest rate. You may not obtain the best rate available even with good credit; interest rates may fluctuate by less than 1 percentage point depending on approved tier.
Fees and Insurance
When you purchase a vehicle from a leasing bank, you must pay taxes on the car's purchase price unless your state does not charge sales tax. Your credit union may allow you to roll taxes and other state fees into your used car loan or require that you provide a down payment depending on your loan-to-value ratio. You must also pay state fees, such as titling and registration costs. Until you purchase your leased car, it is registered and titled to your leasing bank.
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