Can You Get Equity on a Leased Car?
Uncover if your leased vehicle holds unexpected value. Learn how to assess and leverage potential equity effectively.
Automobile leasing involves a long-term rental agreement where you make regular payments for the use of a vehicle over a set period. Unlike purchasing a car with a loan, a lease generally means you do not own the vehicle. However, in certain circumstances, a leased car can indeed develop equity, meaning its market value exceeds the amount required to buy out the lease. This situation presents unique financial opportunities for lessees.
Understanding Lease Equity
Lease equity emerges when the current market value of your leased vehicle surpasses its remaining lease payoff amount, also known as the buyout price. This differs from traditional car ownership, where equity grows as loan principal is repaid. For a leased vehicle, the initial lease agreement includes a predetermined residual value, which is the estimated value of the car at the end of the lease term. This residual value, along with any remaining payments and purchase option fees, forms the buyout price.
While leases are structured to account for expected depreciation, certain market conditions or individual circumstances can lead to positive lease equity. For instance, an unexpected surge in used car values, driving significantly fewer miles than allotted, or maintaining the vehicle in excellent condition can result in the car being worth more than its calculated buyout price. Although not a common occurrence for every lease, it is possible for a leased vehicle to accrue equity, offering a financial advantage to the lessee.
Assessing Your Lease’s Value
Determining if your leased vehicle holds equity requires two key pieces of information: the lease payoff amount and the car’s current market value. The lease payoff amount represents the precise figure needed to purchase the vehicle from the leasing company. This amount typically includes the predetermined residual value of the vehicle, any outstanding monthly payments, and sometimes a purchase option fee, which can range from $300 to $500.
You can obtain this time-sensitive quote by contacting your leasing company directly, often through their customer service line or online portal. It is important to note that some leasing companies may provide a different, higher payoff amount to third-party buyers or dealerships compared to the amount offered to the lessee. Comparing this payoff amount to the car’s current market value is the next step.
To ascertain the car’s current market value, you can utilize reputable online valuation tools such as Kelley Blue Book (KBB), Edmunds, or J.D. Power (formerly NADAguides). When using these tools, accurately input details like the vehicle’s year, make, model, specific features, mileage, and overall condition to receive a realistic estimate. Obtaining quotes from multiple sources, including dealerships or online car buying services, can provide a comprehensive understanding of your vehicle’s true worth in the current market.
Options When Your Lease Has Equity
Discovering equity in your leased vehicle opens several avenues to capitalize on this financial advantage. One option involves buying out the lease and then selling the vehicle. This process requires you to purchase the car from the leasing company at the agreed-upon payoff price, which typically involves securing financing if you do not have the cash readily available. Once the buyout is complete and the title is transferred to your name, you can then sell the vehicle to a third party, such as a private buyer or another dealership, for a profit.
Alternatively, you can consider trading in the leased vehicle at a dealership. If your car has positive equity, the dealership can apply this amount as a down payment or credit towards the purchase or lease of a new vehicle. In this scenario, the dealership typically handles the lease buyout directly with your leasing company, simplifying the transaction for you. It is advisable to shop around, as different dealerships may offer varying amounts for your leased car buyout.
A third approach is to sell the vehicle directly to a third-party buyer or an online car buying service. Some dealerships and online platforms are willing to buy out your lease directly from the leasing company. They will pay the difference between the market value of the car and your payoff amount directly to you. This method can streamline the process, but it is important to confirm that your leasing company permits third-party buyouts, as some have restrictions.