Trading in your current vehicle towards a new lease can be a smart way to upgrade your ride. This guide will walk you through the process of leveraging your lease equity or exploring options even if you don’t have any.
Understanding Lease Equity and Trade-In Value
Lease equity occurs when the market value of your leased vehicle is higher than the remaining lease payoff amount. This positive difference can be used as a trade-in value towards your next lease. Factors like a large down payment, a valuable initial trade-in, or a lower-than-expected depreciation rate can contribute to lease equity.
However, it’s common to have little to no equity in a leased vehicle. This is because lease payments are primarily calculated to cover the vehicle’s depreciation during the lease term.
Trading In a Leased Car: Two Scenarios
When trading in a leased car, you’ll typically encounter one of two scenarios:
Scenario 1: Dealer Buyout and Trade-In Credit
In this scenario, the dealership pays off your remaining lease balance and purchases the car from the leasing company. The car’s wholesale value is then used as a trade-in credit towards your new lease. However, be aware that early termination fees and any difference between the payoff amount and the wholesale value will be factored into the deal. This could result in adding to your new lease cost instead of reducing it.
Scenario 2: Dealer Lease Assumption and No Trade-In Credit
Alternatively, a dealership might assume your remaining lease payments, return the car to the leasing company, and offer no trade-in credit. This frees you from your current lease obligations but doesn’t contribute financially towards your new lease. You’ll still be responsible for any end-of-lease charges like excess mileage or wear and tear.
When Trading In a Leased Car Makes Sense
Trading in your leased vehicle might be advantageous if:
- You’ve exceeded the mileage allowance: Facing hefty mileage overage fees at lease end? Trading in might be a way to avoid these penalties.
- Excessive wear and tear: If your vehicle has significant damage beyond normal wear and tear, trading in could help avoid costly repair charges at lease end.
Before You Trade In: Calculate the Costs
Before making a decision, carefully calculate all potential costs:
- Early termination fees: These fees can vary depending on your lease agreement.
- Payoff amount: Determine the total amount required to pay off your current lease.
- Wholesale value: Research the current market value of your leased vehicle.
Comparing these figures will help you determine if trading in your leased car towards a new lease is the most financially sound option. It might be more cost-effective to simply complete the existing lease term and return the vehicle.
