You know what benefits a leased car brings lower monthly payments, new features and technology, warranty coverage, and the ability to drive it as long as you want. As the years go by and your car miles increase, you might find a better model and want to trade in your current one. You still have to make payments on your current lease and there is much to do. You might wonder if you have the option to trade your car in before you pay it off. This article will give you some insight into how to exchange your leased vehicle for a new lease.
Important Takeaways Before You Trade Your Lease Car
First, determine the value of your leased vehicle before you trade it in. According to Investopedia if your vehicle’s current value exceeds the remaining lease amount, your vehicle will have positive equity. You can use that amount towards a new vehicle. You will need to increase the amount you pay to the dealer if your lease balance exceeds the car’s value. You can trade in your leased vehicle before you settle the balance.
Leasing Basics: Review
You don’t own a vehicle when you lease it. It doesn’t belong in your possession. Because vehicles’ worth decreases at a faster rate, most people don’t use their leases. Because the vehicle’s actual market value will be less than the residual or purchase option, your lease will end with you “upside-down”. You will no longer have any vehicle to trade at a dealer for a new one. You won’t also have any equity. This applies to the case where the balance of your lease payments exceeds the trade-in or market value, or the amount that you received from the company that provided you with the lease. The lease Guide states that this could happen if a person makes a large down payment (cap cost reduction) or trades their vehicle for a higher value than the trade-in credit. This could result in individual positive equity, which you can use to trade in your vehicle. Another possibility is that you might have trade-in equity if your vehicle’s value was underestimated by the leasing company. This caused you to pay higher monthly payments, which resulted in some positive equity.
What is a Lease Trade-in?
There are many ways that a lease trade-in can work for you. It is usually decided primarily by the dealer, who takes every advantage they can. Let me give you some examples.
The first scenario is when your lease ends.
If your current lease is about to expire and you are looking for a new vehicle you should first determine the value of the vehicle (Vehicle trade-in-value). After comparing this value with the purchase option value, or the lease-end residual value, you will be able to calculate the value. If the trade value is higher than you expected, you’ll have positive trade equity which you can use to finance a down payment or lease renewal. It is important to remember that leases are designed so that this does not happen. Most cases will show a lower trade value, so you’ll need to return your vehicle to the leasing company to start a new lease, or buy a car from scratch.
If you have reached the end of your current lease, the Second Scenario
Two things could happen in this situation. You should ask your dealer to help you decide. Before signing, make sure you carefully read the paperwork. Your dealer may decide to pay the balance of your lease. The dealer will purchase the vehicle from the leasing company and place it on his used car lot. After that, they will give you the trade-in credit. They will either add or subtract the difference from the new vehicle or lease you choose. If the dealer charges more than the credit to settle your lease balance, the dealer will provide you with the car. Your lease or purchase includes the functional deficit or negative equity. If the cost is less, the difference will be taken from your lease or purchase and treated by the dealer as a down payment.
Sapling states that all of these numbers should be noted in order to appear on the new lease agreement or purchase contract. The dealer might decide to pay off your remaining lease payments, and then return the vehicle to you. You will not be granted any trade-in credit if the trader does this. The dealer will not likely add the amount due under the lease to the new lease or purchase and conceal these details. These details will not be included in your new contract. However, they will not appear on your new contract since the car was returned by the leasing company. Standard lease conditions will apply. You will pay for damages, extra mileage, and excessive wear and tear, and the dealer won’t be responsible. This is not the best option if you are still in the middle or early stages of your lease, but don’t have enough time to complete it. Because the cost to end a lease like this will be high, and likely exceed the vehicle’s current market value or trade value, it is not advisable. This will result in a high negative or no-trade credit. They can be added to your new lease and will make it prohibitively costly.
Final Verdict
If your car’s trade-in value exceeds its current loan balance, you are good to go. If your car trade-in value is greater than the current loan balance, you can pay off the old loan and then use the difference to purchase the new vehicle. If the remaining cost is greater than the trade-in price, you will need to make up the difference. If this is the case, you should wait to make a better financial decision until you can reduce your loan.
