Lease-end financing: The next lender opportunity (Off the Lot)

Lately it seems every news story is focused on one of the many variables rippling through the economy. Whether it’s on again, off again tariff taxes and to what countries they apply, or other changes in government actions, it’s a lot to focus on.  

With the flurry of changes, lenders and dealers may miss some of the opportunities that could come out of this period.  

One such opportunity may be the benefits to the lease refinance business. During the post-pandemic period from 2022 to 2025, the percentage of vehicles leased dropped. Leasing has since rebounded, landing at 24.7% in the first quarter this year from 19.2% in Q1 2023 and 17% in 2022, according to data from Experian. 

Q1 2025 leasing share 

This substantially reduces the number of used vehicles returning to the market off-lease, which contributes to an increase in late-model used-car prices. At the same time, with tariffs levied on metals and other countries’ new-vehicle production, we are likely to begin seeing much higher new-vehicle prices, regardless of whether the cars are produced inside or outside of the United States. 

A customer whose lease is coming due could find that a replacement vehicle will cost thousands more than the vehicle they are leasing. This may be a motivator for the customer to keep their leased vehicle. However, the end of lease requires a payoff of the lease residual, and most customers are unlikely to be prepared for a large cash payment. 

The opportunities    

This is where a vibrant, lease-end refinance business should develop.  

Many lessors make it difficult for another lender to pay off the customer’s lease and get the title sent to them. This is because only the customer has the option to purchase the vehicle and often the lessors make it tough for the customer to refinance and cooperate with another lender to facilitate the payoff and refinancing. Since most lessors are captives, this creates a huge opportunity for dealers. 

Leased vehicles are titled in the name of the lease company and the user is the lessor. The process of refinancing the lease requires the vehicle to be resold to the customer. Since sales taxes on most leases are paid on the lease payment, the remaining sales tax must be paid upon the purchase of the vehicle by the customer. 

Dealership opportunity 

This creates a perfect opportunity for the original selling dealer to bring back its customer and facilitate the refinance as a sale of the vehicle to the lease customer and provide necessary financing. 

In addition, since this is a new sale, there are opportunities to protect the customer’s repair costs with an extended warranty and, since the customer may be purchasing at an elevated residual, they may benefit from the protection of guaranteed asset protection coverage on the new financing. 

There may be some question about whether the dealer is required to sell the vehicle to the customer at the residual price, since the transaction is the customer selling the car to the dealer and the dealer selling it back to the customer to facilitate the financing. A modest service fee may be appropriate but, if the dealer were to become too aggressive, the customer would have the option to find another way to refinance the vehicle.  

Any dealer with a leasing portfolio should implement robust recapture programs, first intended to resell the customer a new vehicle but, if not, refinance the leased vehicle and create another profit opportunity. 

For lenders, these may be better than normal receivables. Since the customer has cared for the vehicle as their own for the term of the lease, they are probably more likely to have maintained the vehicle. This contract is likely to perform much better than another used-car contract to a retail customer that was purchased at auction. 

Better vehicles have better payment performance. In addition, these are customers who wanted this vehicle because they owned it before the new refinance purchase, so they are likely to pay better than traditional customers.  

Helping dealer profitability, lender growth 

Lenders could develop robust programs to identify dealers that would focus on such an initiative and support their finance efforts with focused refinance programs.  

In a changing and unpredictable economic environment, there are new opportunities developing that could help dealer profitability and lender growth and performance.

Bruce Newmark, formally chief adviser of Vroom and United Auto Credit Corp., is retired and a consultant to the industry. Newmark has more than 45 years of experience in automotive retail and finance. Before joining Vroom, Newmark’s tenure spanned leadership roles at Fimanco, Ford Motor Co., Hankey Automotive Group and Westlake Financial. 

Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. Learn more about the 2025 event and take advantage of the early-bird registration before Aug. 29 here.