Can You Trade In A Lease Car?
The answer is yes! And there’s never been a better time to do it. Due to a high demand for used cars and a shortage in used car inventory, people with a car lease that’s nearing the end of the lease term can trade in their car and use the equity (value) to get a new leased car or as a down payment on a new car purchase.
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Thinking about trading in a leased vehicle but don't know how to get started? Read on to learn how to trade-in a leased car.
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Understanding Your Lease
The main difference between car leasing and purchasing is that when you finance the purchase of a car you are paying toward ownership and it is yours once the car loan is paid in full.
With a lease, you are paying to use the car for a short period of time (usually 2-4 years). When the lease term ends, the vehicle can be returned to the leasing company, purchased for its residual value, or traded in to the dealer you purchased from or another dealer.
There may be times when unexpected situations occur that make it necessary to break a car lease. For example, if you lose your job, changed jobs, can no longer afford the payment, if you will be moving to an area where public transit is available, or if the type of vehicle you’re leasing no longer meets your needs.
If any of these situations has occurred, then ending the lease is the best course of action. If you simply don’t like the car and have grown bored with driving it, these would not be financially smart reasons for getting out of a car lease or trading in a leased vehicle.
Before Trading In Your Lease
If you want to trade in your lease for another car, here are some important terms to help you navigate the trade-in process:
Penalties And Fees. You’ll pay a high price for early termination of a car lease. The more time that remains on the contract, the more you will likely be charged. The lessor will calculate this charge based on the current market value of the vehicle and the time left on the lease. If you have driven excess miles or the vehicle has excessive wear-and-tear, fees will be added.
Residual Value: This is the assumed value that the car will be worth at the end of the lease term. It is also the price you would pay if you choose to buy the car at the end of the lease term.
Lease Equity. This is the value of the car at the end of the lease. If the leasing company anticipated a low residual value at the start of the lease, and the car is now in high demand due to low inventory or the popularity of that model, then you will likely have positive equity at the end of your lese term.
Lease Purchase/Buyout Fee. This fee is an add-on charged by the leasing company when someone opts to purchase their leased car. This can be a few hundred dollars.
When Does It Make Sense To Trade In A Leased Car?
Trading in a leased vehicle is really only a good option when there is equity in the car. If the car is a popular model that has appreciated (due to demand) in the years since you signed the lease, there is a good chance there will be equity (value).
How Trading In A Leased Vehicle Works
Some lessees choose to do a lease buyout then sell the vehicle for a profit. This option makes sense when the
residual value of the vehicle is less than the
current market value, so a profit can be made.
Start by determining the current value of the car. You can look at sites including Edmonds.com, Carvana, Kelly Blue Book, and others.
Compare the car’s current value to the residual value. If the residual value is greater than the current value, then there is no equity in the car, and you likely won’t get much value from it as a trade-in. If the current market value is more than the residual value then you can trade it in and use the equity toward your next car.
Car dealers you visit will also look up the car’s current value and may offer to purchase the lease from you. If the money offered to you by a dealer is more than the residual value of the car then you stand to make some money. If you can negotiate such a deal you can then use money as a down payment toward trading in a leased car for a new lease or towards the purchase of a new vehicle
No matter which option you choose, the first step is to know the
residual value of the car. This value is in your lease contract, or you can contacting the leasing company to get the amount.
Consider how close to the end of the lease you are. Trading-in a leased car at the end of the lease term will be the best option financially, to avoid early contract termination fees.
Other Options For Getting Out Of Your Lease
Due to the financial penalties and hassle associated with turning in a lease early, it’s not recommended to get out of a lease early unless the benefit of doing so outweighs the costs. However, there are times when getting out of a lease is necessary, so here are some ways to get out of a lease:
Sell Your Lease Privately. This option is known as a lease transfer, swap or takeover. It involves transferring your lease to another person, which not all leasing companies will allow. Some will allow a complete transfer to a new driver and other companies may only allow a limited transfer, in which case your name would remain on the lease while someone else takes over the payments. This is a risky option because if the new driver doesn’t make the payments you will be responsible for paying.
Sell Your Lease To The Dealership. With used cars in high demand due to low inventory, many car dealers will buy a leased car, knowing they can turn around and sell it for a profit, especially if the car is in good condition with low mileage. If you’re in need of a new car and you have positive equity in your leased car, the dealer may be willing to negotiate and you can use the trade-in value to purchase a new car or new lease. Or, if you just want the cash, shop around to several dealers and see which will give you the most money.
One note of caution, if you are not at the end of the lease term, terminating a lease early will cost early termination fees. If you’re at the end of your lease, some leasing companies may let you sell or trade-in a few months early.
Either way, be sure to contact the leasing company to find out the residual value of the car, which will help you calculate the current actual value.
For more details read, “
How to Get Out of a Car Lease Early.”
Is Leasing A Car Worth It?
While it’s exciting to purchase a car and think of it as your own, if you are purchasing a car with a loan, then you don’t actually own it until the loan is fully paid. During this time, the car will depreciate and then you own an older car that is less valuable.
So why lease a car to begin with? Many people prefer to lease because leasing allows drivers to have a brand new car at the end of every lease term, which is generally two to three years, thus avoiding costly repairs that come with driving an older car.
For more details read, “
How Does Leasing A Car Work And Is It Ever Worth It?”
CU SoCal Auto Loans
If purchasing a new or used car is more your style, CU SoCal can help with
car loan financing! We offer:
- Up to 120% financing for new and used vehicles.
- Rates as low as 2.89%APR.
- Quick pre-approvals.
- Extended terms up to 84 months for the lowest possible monthly payment.
- A personal auto-buying concierge service.
- Low-cost loan protection add-ons.
- No application or funding fees.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our auto loan experts.
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