Can You Trade In a Leased Car?

Leasing is a cost-effective and convenient way to obtain a vehicle for transportation. This is because it only requires you to make low monthly payments. Additionally, it gives you the privilege of avoiding hefty maintenance and repair costs since they are all taken care of by the leasing company.

However, there are a variety of circumstances that may force you to terminate your lease. For example, when the lease payments become too costly for you and you would like a cheaper option, or when you want a car with better features.

The first thing that comes to mind for many people in this situation is, “can I trade in a leased car?” Yes, you can. However, you will need to learn the ins and outs of trading in. This article will break down the fundamentals of trading in a leased car to avoid losing cash.

Terms You Should Know Before Trading In Your Leased Car

There are a few technical terms that you should be familiar with when it comes to trading in your leased car. Knowing them would help you negotiate for a better deal.

  • Residual Value: This is the estimated value of the vehicle when the lease period comes to an end. It also represents the amount you will be required to part with to purchase the vehicle when the lease term ends.
  • Market Value: The market value is the price at which the car would be sold to a willing buyer. It represents the car’s worth. The market value fluctuates depending on various factors, such as the condition of the car, mileage, demand, and supply.
  • Buyout Price: This is the amount you should pay a dealer to purchase the vehicle when your lease term ends. The buyout price and residual value normally match when you’re at the end of your lease. When you are in the middle of your lease, the buyout represents the residual value plus the remaining monthly payments.
  • Equity: A vehicle’s equity represents the value you get when the buyout price of the car is subtracted from its market value.
  • Trade-in Value:  This is the amount a dealer would be willing to give you for your leased vehicle so it can go toward purchasing a new one.

How Does Trading In a Leased Car Works

Trade In a Leased Car

Before answering the question “Can I trade in a leased car?”  You should know how trading a leased car works. Below is a comprehensive explanation:

Trading In at the Start of a Lease

It is never advisable to trade in your car at the start of the lease. This is because the cost of terminating your lease agreement early may outweigh the market value of the vehicle. Furthermore, your car’s equity is normally negative during this period.

In this case, your dealer might decide to return the car to the leasing company and cover any early termination charges. Alternatively, they may purchase the vehicle by settling any outstanding lease balances.

In both cases, all the extra expenses that the dealer incurs will be lumped together with your new car payments, making them very costly.

Trading In Near the End of a Lease

A few things might happen when you trade in your car when your lease is about to come to an end. Firstly, the dealer may decide to take care of your outstanding lease payments. After that, they will purchase the vehicle from the lease company.

The dealer then places the vehicle in their car yard and awards you trade-in credits. If the dealer spent more to settle your lease balance compared to the trade-in credits they gave you, the difference, or negative equity, is included in your next lease. If they spent less, then the excess will be used as a down payment for your next lease.

Secondly, the dealer may settle your outstanding lease balance and take the car back to the lease company. In this scenario, all the costs that the dealer incurs will be added to the total cost of your new car.

Trading When the Lease Ends

The first thing you should do when you come to the end of your lease is to determine the trade-in value of your car. Compare this value to the buyout price or residual value of your car as specified in your lease agreement.

If the trade-in value surpasses the buyout price, then your vehicle has positive equity, which you can apply to your next purchase or lease. If it is less than the buyout price, the deficit will be included in your next lease or purchase.

Pull Ahead Programs

Pull ahead programs are a special type of program that car manufacturers offer to customers to improve brand loyalty and presence. In this program, an automotive company removes early termination charges from the total costs for any customer that wants to purchase another car from them.

This type of program is suitable for people who want a different car for a change but from the same brand. Instead of waiting for the lease term to come to an end, you can just initiate the new lease without worrying about early termination fees.

When is The Best Time to Trade In a Lease

Getting out of a lease is not always the best option in most cases. However, trading in may be advantageous in the following circumstances:

When the Mileage is Exhausted

Every lease agreement includes a mileage cap that you shouldn’t exceed during the lease term; otherwise, you’ll be fined. This fine involves a $0.15 to $0.30 fee for every extra mile you drive over the cap.

It would make financial sense to trade in your car if you’ve already exhausted the mileage before your lease ends. This would help you avoid these expensive charges.

 When there is Damage to the Car

If your car is badly damaged, then you should opt for trading it in earlier than expected to avoid hefty wear-and-tear charges that you might incur at the end of the lease. Although the trade-in value might not be as high as it would be if the vehicle were new, you will save on costs by avoiding those hefty fees.

When You Can’t Afford Payments

Sometimes you may not want to end your lease early, but unpredictable circumstances force you to. For example, when you’re laid off from work, or your business is doing badly and you can’t afford to make payments anymore.

The easiest thing to do in this situation would be to trade in your car for a much cheaper option.

Preparations for Trading in Your Leased Vehicle

Below are some of the things you need to do to ensure that the trade-in goes smoothly:

Gather Important Documents

It is important to carry some documents that may help you get a better deal when trading in your vehicle. For example, you can take some receipts showing that you regularly serviced the vehicle before handing it in.

You can also present paperwork that proves you carried out all the necessary repairs if your car has recently been involved in an accident. Some other documents include the owner’s manual, maintenance records, and vehicle inspection reports.

Cleaning

It is generally good practice to leave your car clean, although it is not mandatory. You should just spruce it up a bit and get rid of all your belongings. Additionally, you can wipe out your personal data from the car’s technology. These include your addresses, call history, contacts, etc.

Repairs

The dealer usually inspects the vehicle and deducts a fee to account for wear and tear that happens to the car when you lease it. You can weigh which repairs are worthwhile and which should be avoided.

For example, if it could potentially cost you $800 to fix worn-out tires while the dealer charges $650 for repair, then it would be best if you returned the vehicle like that.

Clear Your Parking Tickets

You should pay for any parking tickets that you have before trading in your vehicle. Returning a leased car that doesn’t have any outstanding parking tickets will help you negotiate a better deal.

How to Get Out of a Lease

“Can I trade in a leased car?” is a question that most people ask when trying to get out of their lease. But sometimes abandoning a lease so you can trade in your car can end up being very costly. In such instances, you can choose other methods, such as selling your vehicle to:

1. A Dealership

There is no better time to sell your lease than now, since the demand for used cars is at an all-time high. This is because most dealers who purchase the car from you stand to make a profit from reselling it.

You can approach any dealer if you’ve estimated that your vehicle has positive equity. Often, they will let you use your car’s equity to lease or purchase a new vehicle.

2. A Private Party

This is also referred to as a lease swap or transfer. You should find someone else who is interested in purchasing your leased vehicle, such as a family member, friend, or trusted buyer. You can contact the leasing company and have them transfer your lease to them.

They will then take over the payments from you. However, not all leasing companies allow lease transfers.

Final Verdict

If you’ve been wondering, “Can I trade in my leased car?” You should know that it is not that simple, especially if you don’t know how to go about it. Research your vehicle’s value first before approaching a dealer, otherwise, you might get a raw deal.

Additionally, always ensure that your leased car has positive equity before trading it in. Do not trade in your leased car unless it is absolutely necessary.

Frequently Asked Questions (FAQ)

Can I Trade in My Lease Car for a Different Brand?

Yes. You can trade in your lease for another brand other than the one you currently have, as long as you have positive equity, or you can get someone else to buy out your lease.

When Is the Best Time to Trade In My Leased Vehicle?

Now is the best time to approach your dealer for a trade-in deal. This is because there is a high demand for used cars on the market right now, so most dealers know that they can make a profit after reselling them.

Can You Trade Your Leased Car to a Different Dealership?

Yes. You can trade in your leased car at a different dealer. They will pay to purchase the vehicle at its trade-in value and clear any payments you had with your previous dealer. If you had any positive equity, then they would use that as a deposit for your next lease.

How Can You Get Out of Your Lease?

There are several ways you can get out of a lease, including selling your lease to a dealership, a friend, a family member, or an independent buyer.

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