Turn Your Leased Vehicle Into Cash
The value of used cars has fluctuated dramatically over the past few years. In fact, their value has significantly increased for many cars, making it difficult to find reasonably priced used vehicles. However, this trend affects not only used car buyers but also new car leasing.
When you lease a new car, you’re paying for the difference between its initial cost and what it will be worth in a few years. For example, if you lease a $40,000 car for three years and it’s estimated to be worth $25,000 at the end of the lease, the car’s depreciation is $15,000, which is all you’ll pay for. This makes leasing very cost-effective as you only pay for the part where the car’s value goes down.
However, the leasing companies have to estimate the car’s value at the end of the lease. If their estimate is lower than the car’s worth, it’s good news for you as the consumer. You can buy the vehicle for the estimated value, even if you don’t plan to keep it. For example, if the car is estimated to be worth $25,000 but is actually worth $30,000, you can buy it for $25,000 and sell it for $30,000, keeping the profit.
According to a CNBC article, we’re seeing this phenomenon in the automotive industry, where cars leased are worth an average of $4,000 more than the leasing companies estimated. Therefore, if you’re approaching the end of your lease, make sure you don’t just turn in the keys and walk away. If the car is worth more than the estimated value, buying and selling it can be profitable.
Don’t let the dealer make the profit that you could have kept. Not walking away from equity is essential, even if you no longer want your car. The amount that leasing companies estimate for the lease and value is called a residual value, and in recent years, they have been way off due to the market going up more than they anticipated. This can put you in a position of equity.
Moreover, this trend can also affect new leases. Leasing companies are guessing higher values because of the market’s recent surge. For example, a $40,000 car previously estimated to be worth $25,000 at the end of the lease may now be worth $30,000. This means you only have to pay the difference of $10,000 instead of $15,000, making lease payments cheaper in theory.
However, it depends on the lease company’s approach. Some may still be conservative in their estimates, while others may use higher values. Therefore, if you’re considering leasing a car, shopping around to find a company that offers better value is crucial.
If you’re approaching the end of your lease, don’t just turn in the keys and walk away. Look at your residual value and consider trading it in or buying a new car. For instance, if your car is estimated to be worth $30,000 and your payoff is $25,000, you can use the $5,000 towards your next vehicle. This is the difference between a trade-in and a lease turn-in. They may sound and look the same, but ensuring that the dealer doesn’t absorb your equity without giving you credit for your next new car deal is vital.