While most people prefer buying a car to own it all together, some people opt to lease a car from car dealers for a particular duration and number of miles. They make monthly lease payments, and when the lease period is over, they can lease another new car or extend the lease period. You may choose to trade in a leased car for a new lease if you do not like the current car.
When driving a car on a lease, you do not own it. The company that leased you the car owns it. You also have to insure the vehicle to get compensation from the insurance company in case of any damage by road accident or fire. In a situation where you crash your car and get compensation for the actual price of a vehicle, you still owe the car company you leased.
Although leasing a car may not be a good idea since you may not have equity in it, you always have a chance to drive new cars all the time. Car lease periods last between 2-4 years, although others can go up to seven years. You also enjoy free repairs since during the lease period, the car still has a warranty from your dealer, and thus you will be able to save on regular maintenance of the vehicle.
How to trade in a leased car for a new lease
Although you can get the cheapest cars to lease with no money down in many car companies, it reaches a point that you are not in love with the current vehicle. It doesn’t matter how low you pay for the lease every month as you may start earning more money with time and decide to upgrade your car and other lifestyles.
Moreover, it is not necessarily that you become more monies to get another car as you can get a better deal for the same car in another car company. To save on the lease’s eventual cost, you can decide to trade in the leased car if the terms and conditions allow. It is always wise to sell the leased car if you see a difference in the residual value and the market price.
When trading your card for a new lease, there are various terms you need to understand. These include the following.
i) Residual value
Residual value refers to the car’s value estimate at the end of the lease period. A vehicle depreciates as you use it. The depreciation of a vehicle depends on quality, brand, durability, age, and mileage. It means that by the time you finish your contract with the car company, the car will not be costing the same as during the time you signed the contract.
ii) Buyout price
The buyout price equals the residual value of the car. The value does not change at any given time. It is the price you should pay to purchase your vehicle at the end of the lease period. The buyout price for your current car might be higher than that of the new car you have come across. Therefore, you have a good reason to trade in your leased car and sign a new contract for the new car.
iii) Market value
If you want to trade in your leased car, you have to consider the market value and see whether it is going to be profitable or not. If you have not used your car very much in terms of mileage and are in good condition, you might find that your vehicle is valuable so long as the market value of a new car of a similar model is high.
The scenario can arise if, for example, the car uses petrol, and the petrol prices are down, meaning that there will be more demand for petrol-propelled cars. Remember that car damages can also lower the market price of your vehicle.
Equity is the difference that arises between the market value of the car and the residual value. As I mentioned earlier, the residual value is the buyout value. It is the money you will pay to acquire full ownership of the vehicle. If the difference is positive, then you can trade-in your car as you will realize a profit. If the result you get is negative, there is no need to trade in the leased car as you will make a loss. The market price will be lower than the residual price.
You can sell the car to the car dealer or a different client, depending on the options available. Your car dealer typically estimates the car value at the end of the lease period. If they make a mistake and make a low estimate, then you have an excellent chance to make a profit by selling the car at the market price and signing for a new lease.
Apart from selling the car to a car dealer, positive equity gives you other options to trade in a leased car. These include;
1) Buying the leased car and selling it
If the market value is higher than the total cost of the car at your dealer’s place when you signed the agreement, then you can buy it from your dealer and sell it. You can even take an auto loan to cover the expenses. After all, there is nothing to lose but just making profits. Once you sell the car, you then repay your loan and remain with some money.
2) Selling the leased car to a dealership
It is not necessarily that you sell the car to the dealer that leased you the car. You can sell it to a different car dealer who will then pay you the difference between the market price and the vehicle’s residual value, then settle the rest with the company that leased you the car.
3) Swapping your leased car
It is possible to swap your car on lease with another person who may be your family member, a friend, on anyone else interested. You only transfer the remainder of the lease period to the other person.
Can you lease a car with bad credit?
Most car dealers will always avoid leasing cars to people with bad credit scores to avoid losing money. Moreover, most car dealers cannot allow you to rent and buy a car with bad credit and no money down. Some car dealers only will enable you to rent and buy a car only when you make a sizeable down payment. At the end of it all, you may realize that you have paid more for the vehicle than a person with a good credit record.
Most car companies can lease cars to people with credit scores of at least 620. If you own a credit score of 680 and above, you will likely receive exceptional offers on the lease program. The chances of acceptance when having high credit scores are also high.
Why should you consider trading in a leased car for a new lease?
Various reasons make trading a leased car a good option. These include;
1. Transactions happen in one place
All transactions take place in one place whereby the sales agent completes everything in one seating. It is not the same as when you are trying to sell the car to specific people where you meet people at different places to negotiate prices. It makes the process easy
2. The process is straightforward
There are no complicated processes as you only need to visit your dealer to trade in your car and get another one. The salespeople handle all the paperwork quickly, and you can drive your new leased car. It is contrary to when trying to sell the vehicle yourself, as you will have to run up and down in various offices to facilitate the transfer process.
3. The dealer can pay off your existing loan.
With the positive equity, you can get a new car on lease with low installments and let the equity act as your down payment. Down Payments lower your monthly payments, and the larger the down payment, the lower the monthly payments. A car for $500 down with no credit check will help you pay lower monthly dues than a vehicle with a lower or no deposit.
Is trading in a leased car for a new one always a good idea?
Even though you might have calculated the difference between the market price and the residual value and got positive equity, selling it to your dealer may not fetch you the maximum price you could have got. You will find that you could have benefitted more if you sold to an individual. In short, you won’t get the best value for the car.
Frequently asked questions about car leasing
There are questions that most people tend to ask themselves as far as car leasing is concerned. Some of the common questions are as below.
a) Can I return a leased car within or after 30 days?
Some car dealers can allow you to return the car within 30 days, while others will not unless you pay the penalty. It depends on the agreements you make with your dealer. Always ensure that you master what is in the small prints to avoid inconveniences.
b) Can I lease a car without money down?
There are many deals that you can get without down payments. However, they might have higher monthly installments than the ones with down payments. Despite that, it is possible to get zero to $99 car leases with no money down deals in many companies. According to Cars.usnews.com, 2021 Mazda 3, 2021 Mini Cooper, and 2021 Toyota Corolla are some of the cars you can get with no money down and a monthly payment of up to $200.
c) Can I return a damaged car to my dealer?
The answer to this query is yes. You can return a damaged car to your dealer and pay no charges if it is minor damage. Minor damages have a warranty cover. However, you may have to pay for extreme damages. Remember, a warranty does not cover all kinds of damages. It covers car parts and the systems that break down due to flaws or defects in the factory. Usually, a basic warranty lasts for about three years or 36,000 miles.
d) Do I need to insure a car on a lease?
Even though you do not own the car, you have to buy auto insurance. If you get a car crash, then the insurance company can compensate you for the car’s current value. If you do not insure your vehicle, you will lose it in case of severe damage and continue repaying your dues. The law enforcers will also not allow you to drive a car without insurance cover.
e) Can a dealership take over a lease?
If the lease favors the dealer, they can take over the lease payment until it is over when you trade in a leased car.
f) Is it possible to negotiate the buyout price with a car dealer?
It is possible to negotiate the buyout price only before signing the agreements with your dealer. Once you sign, the deal is over, and you have to stick by that. Even the dealer cannot breach the contract when the market price of the vehicle shoots up.
g) Can I upgrade a leased vehicle?
Yes, you can take your car to a dealership and upgrade to a more modern one according to your wishes. You, however, have to pay for the upgrade. It is important to weigh on upgrading or not upgrading as it may be better to remain with your present car.
Trading in a leased car is an excellent option to do away with a vehicle you are no longer interested in. You trade in a car if you realize that you have positive equity to make some profits. You can trade-in your leased car with a car dealer or a private party. Vehicles on lease need insurance just like the cars you fully own. You can always negotiate the buyout price before signing agreements.