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Can I Trade In A Leased Car For Another Car? Guide
Yes, you can trade in a leased car for another car. This is a way to get out of your current lease early and start a new one or buy a different car. However, it’s not always simple or cheap. It involves figuring out how much you owe on your lease and how much the car is worth right now. The difference between these two numbers will affect your new car deal.
What Happens When You Trade a Leased Car
Trading in a leased car is like ending your lease early. The dealership helps you do this. They take your leased car. Then they help you get into a different car, maybe a new lease or a purchase.
This is different from waiting until your lease ends. At the end of lease options usually include returning the car, buying it, or sometimes trading it. When you trade it early, you skip the last steps of your lease contract.
The dealership acts as the middleman. They handle the paperwork with the lease company. They figure out the numbers to make the trade happen.
Key Numbers for Trading Your Leased Car
Two main numbers are important when you trade a leased car.
What the Car Costs to Buy Now: The Lease Payoff Amount
This is the price you would pay the lease company to buy the car today. It’s not the same as just adding up your remaining lease payments.
The lease payoff amount includes:
* The car’s worth that you agreed to pay off during the lease.
* Any remaining lease payments.
* Fees for ending the lease early (early lease termination fees).
* Sometimes other small costs.
You need to get this exact number from your lease company. It changes over time. As your lease gets closer to the end, the payoff amount usually goes down.
What the Dealership Will Pay You for the Car: The Lease Trade-In Value
This is how much the dealership thinks your car is worth to them right now. They will give you this amount as credit towards your next car.
The dealership looks at things like:
* The car’s condition (how clean it is, any damage).
* How many miles you have driven.
* What the car usually sells for in your area (market value).
* If the car is popular or not.
The lease trade-in value can be different at different dealerships. It’s a good idea to get offers from a few places.
Comparing the Numbers: Payoff vs. Trade-In
This is the most important step in the dealership trade-in process for a leased car. You compare the lease payoff amount to the lease trade-in value.
- Lease Payoff Amount: What you owe the lease company to end the lease and buy the car.
- Lease Trade-In Value: What the dealership will give you for the car.
There are two possible results from this comparison:
Situation 1: The Car is Worth More Than You Owe (Positive Equity)
This happens if the lease trade-in value is higher than the lease payoff amount.
Example:
* Lease Payoff Amount: $18,000
* Lease Trade-In Value: $20,000
* Difference: $2,000
This means the car is worth $2,000 more than you owe on the lease. This $2,000 is called positive equity. The dealership will give you this $2,000. You can use this money towards your new car lease or purchase. It can lower your monthly payments or cover fees.
Situation 2: You Owe More Than the Car is Worth (Negative Lease Equity)
This is very common with leased cars, especially early in the lease. It happens if the lease payoff amount is higher than the lease trade-in value.
Example:
* Lease Payoff Amount: $22,000
* Lease Trade-In Value: $19,000
* Difference: -$3,000
This means you owe $3,000 more than the car is worth. This $3,000 is called negative lease equity. It’s like a debt. You have to pay this $3,000.
How do you pay this negative equity?
* You can pay the dealership the $3,000 right away.
* More often, the dealership adds this $3,000 to the cost of your new car lease or purchase. This is called rolling the negative equity into the new loan or lease.
* Rolling negative equity makes your new monthly payments higher. It means you are paying for the old car debt with the new car payments.
Trading in a leased vehicle often involves dealing with negative lease equity. It’s important to know this amount before you agree to a new deal.
Why Negative Lease Equity is Common
Lease payments are often lower than loan payments for the same car. This is because lease payments cover the cost of the car’s value loss during the lease time, plus interest and fees. They don’t quickly build up ownership value in the car like loan payments do.
Cars lose a lot of their value when they are new. This big value loss happens quickly.
In the first few years of a lease, the payoff amount (which includes the remaining big chunk of the car’s original price) is often much higher than the car’s actual market value. This difference is the negative lease equity.
The car’s value goes down faster than your lease payments reduce the payoff amount.
How the Dealership Handles Trading In A Leased Vehicle
When you go to a dealership wanting to trade your leased car for another car, here are the steps they follow:
Step 1: Look at Your Leased Car
The dealership will check your current leased car. They look at:
* The outside and inside condition.
* The mileage.
* Any damage.
* How well it runs.
They use this to decide its lease trade-in value. They look up what similar cars sell for in the market.
Step 2: Get Your Lease Information
You need to give the dealership details about your current lease.
* The lease company’s name.
* Your account number.
* The car’s Vehicle Identification Number (VIN).
* How many miles you are allowed and how many you’ve used.
* When the lease ends.
Step 3: Get the Lease Payoff Amount
The dealership will contact your lease company. They will ask for the exact lease payoff amount for that day.
Sometimes, dealerships have special agreements with certain lease companies. They might be able to get a different, maybe lower, payoff price than you could get yourself. This is called a “dealer payoff.” It’s worth asking if they can get a dealer payoff.
Step 4: Figure Out Your Equity or Debt
The dealership compares the lease trade-in value they will give you to the lease payoff amount from the lease company.
- Trade-In Value – Payoff Amount = Your Equity (positive or negative)
They will tell you this number.
Step 5: Work Out the New Car Deal
Now that they know your equity (or negative lease equity), they use this number in the deal for the new car.
- If you have positive equity, that amount acts like a down payment on the new car. It lowers the amount you need to finance or lease.
- If you have negative equity, that amount is added to the price of the new car. It increases the amount you need to finance or lease. This is how negative equity gets “rolled in.”
They will then calculate payments for the new car lease or loan based on the new total amount.
Costs to Consider When Trading Early
Trading in a leased car early can have costs.
Early Lease Termination Fees
Your lease contract likely has fees if you end the lease early. These fees cover the lease company’s costs for not completing the full contract. The lease payoff amount usually includes these fees. Make sure to ask if specific fees are added on top.
Remaining Lease Payments
The remaining lease payments you would have made are usually built into the lease payoff amount calculation. You don’t just add up your future monthly payments; the payoff is a complex formula set by the lease company. But the payoff amount is higher because you are not finishing the term.
Negative Lease Equity Cost
If you have negative lease equity, this is the biggest cost. You have to cover the difference between what the car is worth and what you owe. As discussed, this is often added to your new car price, making your new payments higher.
Fees for the New Car
When you get a new car lease or buy a new car, there are also fees for that new deal. These can include:
* Dealership fees.
* Registration and plate fees.
* Taxes on the new car or lease.
Make sure you see all these costs clearly laid out in the new deal paperwork.
Why Trade In a Leased Car Early?
People trade in a leased car before the end of the term for different reasons:
- Needs Change: Your family is growing, you got a new job with a long commute, or you need a different type of vehicle (truck, SUV, electric car).
- Mileage Issues: You are driving much more than your lease allows and face big excess mileage fees at the end. Trading early might help you avoid these.
- Car Issues: The car isn’t reliable, or you just don’t like it anymore.
- Better Deals: Sometimes there are special offers on new cars that make trading in seem attractive, even with negative equity.
- Avoid End-of-Lease Costs: You might want to avoid potential fees for damage, excess mileage, or wear and tear at the scheduled lease end.
- Want Something New: You simply want a newer model or a different vehicle.
Remember, trading early often costs money, especially if you have negative lease equity. Weigh the costs against the reasons for wanting a new car.
Getting a New Car After Trading Your Leased Car
Once the dealership handles the trade-in of your leased vehicle, you move on to getting your next car.
Choosing Your Next Vehicle
You can choose to:
* Lease another new car (a new car lease).
* Buy a new car with a loan.
* Buy a used car with a loan.
The dealership will help you with financing or leasing options for the vehicle you choose.
Figuring Out the New Payments
The cost of the new vehicle will be adjusted by your equity or negative equity from the trade-in.
- If you had positive equity, that amount lowers the price of the new car deal. This means lower monthly payments.
- If you had negative lease equity, that amount is added to the price of the new car deal. This means higher monthly payments.
The dealership’s finance team will show you different payment options based on the car price, your trade-in situation, interest rates, and the loan or lease term.
Important Considerations for Trading In A Leased Vehicle
Trading a leased vehicle is a big financial step. Think about these points carefully:
Check Your Current Lease Contract
Read your lease agreement. Look for clauses about early lease termination. What are the fees? How is the payoff calculated? Knowing these details helps you check the dealership’s numbers.
Get the Official Payoff Amount
Don’t just guess. Call your lease company and ask for the official lease buyout or payoff amount for your specific car today. Write down who you spoke to and when.
Know Your Car’s Worth
Research the value of your car. Look at sites like Kelley Blue Book (KBB) or Edmunds to get an idea of its lease trade-in value. Remember, this is just an estimate. The dealership’s offer might be different.
Shop Around
Get trade-in offers from a few different dealerships. Their offers for your leased car can vary. Their prices and lease terms on the new car will also vary. Compare the full deals, not just one part.
Be Aware of Negative Equity
Assume you might have negative lease equity. Ask the dealership clearly how much it is and how they plan to handle it. Make sure you see the negative equity amount added into the new car paperwork if it’s rolled into the new loan or lease.
Understand the Total Cost
Focus on the total cost of the new deal, not just the monthly payment. A low monthly payment can hide a lot of rolled-in negative equity and a longer loan or lease term. Look at the final price of the new car after the trade-in is figured in.
Is Trading Early the Best Option?
Compare trading early to waiting until the end of lease options.
* Wait till end: Return the car (possibly pay mileage/wear fees) or buy the car (lease buyout). Then get a new car.
* Trade early: End lease now, pay potential early fees/negative equity, get new car now.
Sometimes waiting is cheaper. Sometimes trading early is worth the cost for convenience or need.
Deciphering the Numbers: An Example
Let’s look at an example to make it clear.
Suppose you have a car leased for 36 months. You are 24 months in. You want a new car.
- Your lease payoff amount is $20,000 (this includes remaining payments, fees, etc.).
- The dealership says your car’s lease trade-in value is $18,000.
Calculation:
* Trade-In Value ($18,000) – Payoff Amount ($20,000) = -$2,000
You have $2,000 in negative lease equity.
Now you want a new car with a price of $30,000.
Option A: Pay Negative Equity
* New car price: $30,000
* Pay negative equity separately: $2,000 cash
* Amount to finance/lease for new car: $30,000
Option B: Roll In Negative Equity
* New car price: $30,000
* Add negative equity: + $2,000
* Total amount to finance/lease for new car: $32,000
As you can see, rolling in negative equity adds to the price of your new car. This will make your new monthly payments higher than if you started fresh without the old debt.
Comparing Trading In to End Of Lease Options
When your lease is ending, you have choices. Trading in a leased vehicle is one of these options, but you can also do it early. Let’s look at the choices.
Option 1: Return the Car
- What happens: You give the car back to the dealership or lease company at the end of the lease term.
- Costs: You might pay fees for extra mileage, damage, or wear and tear. There’s usually a turn-in fee.
- Benefit: It’s simple. You walk away, owing nothing else if you are within the rules and pay fees.
- Downside: You don’t get any value from the car itself. You might pay unexpected fees.
Option 2: Buy the Car (Lease Buyout)
- What happens: You buy the car from the lease company for a price listed in your lease contract (the residual value) plus any purchase fees and sales tax.
- Costs: The buyout price, purchase fees, taxes, maybe getting a loan to buy it.
- Benefit: You know the car’s history. If the car’s market value is higher than the buyout price, it can be a good deal. You avoid turn-in fees and mileage/wear fees.
- Downside: The buyout price might be higher than the car’s market value. You take on ownership costs (maintenance, repairs).
Option 3: Trade In Your Leased Vehicle (at or near the end of the lease)
- What happens: The dealership gives you a trade-in value for your leased car and uses it towards a new car.
- Costs: The dealership’s offer (trade-in value) vs. your lease buyout amount. If the trade-in value is lower than the buyout price, you might have to pay the difference or roll it in.
- Benefit: The dealership handles the end-of-lease process for you. You can use any positive equity towards your new car.
- Downside: Dealerships might offer less than the car’s true value. You might still have negative equity even at the end of the lease if the car lost more value than expected.
Option 4: Trade In Your Leased Vehicle (Early)
- What happens: Same as above, but you do it before the lease term ends.
- Costs: Lease payoff amount (often includes early termination fees and remaining lease payments) vs. trade-in value. Usually involves negative lease equity.
- Benefit: You get into a different car sooner if you need or want to. Avoids future mileage/wear fees if you stop driving it.
- Downside: Almost always results in negative lease equity and higher overall costs compared to waiting or a standard end-of-lease trade.
Trading in a leased car, especially early lease termination, is a way to change vehicles but it’s a financial decision that needs care.
Tips for a Smoother Lease Trade-In
- Get Your Payoff First: Call the lease company yourself to know the exact lease buyout number. Don’t rely only on the dealership.
- Clean Your Car: A clean car looks better and might get a slightly better trade-in value offer from the dealership.
- Fix Small Damages: Repair minor dents or scratches if it costs less than the potential fee the lease company or dealership would charge.
- Know Your Mileage: Check your contract’s mileage limit and your current mileage. High mileage hurts trade-in value and can add costs to the payoff.
- Have All Paperwork Ready: Bring your lease contract, registration, and maintenance records to the dealership.
- Don’t Just Look at Monthly Payment: Always ask for the total price of the new car including any rolled-in negative equity. Compare loan/lease terms too.
- Consider Selling Yourself: In rare cases, if your car’s market value is higher than the lease payoff amount (positive equity), you might be able to buy the car yourself (lease buyout) and then sell it to a private buyer or a different dealership for more money than the first dealership offered as a trade-in. This is more work but could save you money. Check if your lease allows this and what the process is.
Fathoming the Process: What Dealers Want
Dealerships make money by selling cars and arranging financing. When you trade in a leased vehicle, they see a chance to do both.
- They want to give you a good price for your trade-in that lets them make a profit when they sell it later.
- They want to sell or lease you a new car.
- They want to arrange your new loan or lease.
They know that dealing with negative lease equity is common. They are often very willing to roll that debt into your new car payments. This helps them make the deal happen, but it costs you more in the long run.
Be a smart shopper. Know your numbers (payoff, estimated trade-in value, negative equity). Don’t feel pressured. If the numbers don’t work, it’s okay to wait or look at other options.
Frequently Asked Questions (FAQ)
Q: Can I trade my leased car at any dealership?
A: Yes, usually. You don’t have to trade it at the same brand dealership or where you leased it. Any dealership can get a payoff quote from your lease company and handle the paperwork. However, some lease companies might have special payoff amounts for their own brand’s dealerships, which could be slightly lower.
Q: Does trading in a leased car hurt my credit score?
A: Trading in the car itself does not hurt your credit score. However, if you roll negative lease equity into a new loan or lease, you are borrowing more money. Taking on more debt can affect your credit utilization, which might slightly impact your score. Missing payments on your new loan/lease will definitely hurt your credit.
Q: What if I am over my mileage limit when I trade the car?
A: The extra mileage will likely reduce the lease trade-in value the dealership offers. It might also increase the lease payoff amount calculated by the lease company, as early termination clauses often factor in excess mileage. You will pay for the extra miles one way or another. Trading in might be better than paying high per-mile fees at lease end, but calculate both costs.
Q: What if my leased car has damage?
A: Like excess mileage, damage will lower the dealership’s trade-in value offer. The lease payoff amount might also include costs for fixing damages, or the dealership might charge you for them. Get estimates for repairs yourself to see if fixing small issues before trading is cheaper.
Q: Is a lease buyout at the end better than trading it in?
A: It depends on the numbers. If the car’s market value is much higher than the lease buyout price in your contract, buying it yourself and then selling or trading it might save you money. If the buyout price is higher than the market value, returning it or trading it might be better, but check the costs of each option carefully. Trading it in avoids the hassle of selling it yourself after buying it.
Q: Will the dealership pay my remaining lease payments?
A: No, not directly. The lease payoff amount that the dealership gets from the lease company includes the value of those remaining payments plus other costs and fees needed to close the lease contract early. The dealership pays this total payoff amount to the lease company using the trade-in value they give you for the car. If the trade-in value is less than the payoff, that difference is your negative equity.
Q: How long does the process take?
A: Getting the payoff amount from the lease company can take a little time, sometimes up to 24-48 hours, though many dealerships can get it faster. The rest of the dealership trade-in process and setting up the new car lease or loan can often be done in a few hours once they have all the numbers.
Q: Can I trade a leased car if I have very few remaining payments?
A: Yes, you can. When you are very close to the end of the lease, the lease payoff amount is often close to the residual value (the price to buy it at lease end). Trading it in might be similar to a standard end-of-lease trade. Sometimes, if the car is worth more than the residual value, you might even have positive equity.
Summing Up Trading a Leased Car
Trading in a leased car for another car is possible and is a form of early lease termination. It involves the dealership handling the lease buyout with the lease company.
The key is comparing the lease payoff amount (what you owe to end the lease) to the lease trade-in value (what the dealership will give you for the car).
Often, this results in negative lease equity, meaning you owe more than the car is worth. This debt is usually added to the cost of your new car lease or purchase.
Know your numbers, read your lease contract, shop around, and understand all the costs involved, including early termination fees and remaining lease payments factored into the payoff. Weigh the cost of getting a new car early against waiting until your lease ends and choosing from your end of lease options. Making an informed choice helps you get the best deal.