NEW YORK (MainStreet) – People who lease cars tend to cherish two benefits over owning: low anxiety levels and low monthly payments. When the lease ends, you can turn in the lightly used vehicle and pick up a new one.
But this winter it can pay to go through a little extra trouble, because high used-car values could be converted into cash when the lease expires – something your friendly car dealer may not mention.
“Some consumers may be eligible to collect thousands of dollars before turning in their leased cars,” says Edmunds.com, the vehicle-data firm.
Edmunds explains that used-car prices have been driven up by low inventories on new cars and tight credit, which reduces the number of new-car buyers eligible for loans and drives up demand for used cars.
As a result, some leased vehicles are now worth more than the residual value written into the contract when the vehicles were leased several years ago. Dealers generally do a good job estimating what a vehicle will be worth when the lease expires two, three or four years later, but sometimes unanticipated factors drive actual prices higher or lower than the estimates.
The typical lease contract gives the customer the right to buy the vehicle at the residual value. If the actual value is higher, the customer can profit in three ways.
Sell to a dealer. First, you can exercise your option to buy the vehicle at the price specified in the contract, then sell it to your dealer, or another one, for the higher market price. Selling to a dealer will fetch a wholesale price, generally the same as the trade-in value. You might get a slightly higher retail price by selling directly to another individual.
Buy the leased car, then turn it in on a new purchase or lease. This allows you to turn the unexpected equity into a down payment.
Sell to a friend. The third option is a “lease buyout transfer,” a process for selling your vehicle to someone else, typically someone which whom you share some trust, like a neighbor, friend or family member. Your buyer mails a check for the buyout amount to the leasing company. When you receive the title, you turn it over to your buyer.
Remember, you don’t have to wait until the lease is ending – you can exercise your option to buy at any time. If your lease has some time to go, you’ll have to ask the leasing company about the buyout price. Whether you are midstream or at the end of your lease, use the Edmunds used-car pricing tool for an estimate of your vehicle’s value in a turn-in or sale to a private party.
Before leasing your next car, think about whether leasing is the best option. Current conditions are unusual, and you shouldn’t assume future leases will allow you to build equity.
Also, in the long run leasing tends to be more expensive than owning because you never get free of monthly payments. The most economical approach is to buy a slightly used vehicle, like one coming off a two- or three-year lease, and then keep it until it falls apart.