3 Ways to Turn Your Lease Into Cash

Leverage the Equity in Your Leased Car


If you're heading to the dealership to turn in your leased vehicle, it's smart to check its value. If you don't, there's a chance you could be walking away from thousands of dollars in cash. That's particularly true now for owners of traditional SUVs and trucks of all kinds.

Used car values are high now due to a shortage of used vehicles, a side effect of the COVID-19 pandemic. Your expiring lease might have more value in it than expected, according to Edmunds experts.

"Dealers are willing to pay more to acquire inventory to meet the surge in demand for used cars," said Jessica Caldwell, Edmunds' executive director of insights, "which is great news for car owners because it means they can expect to get a higher value for their vehicle if they sell or trade right now. But time is of the essence because there's no guarantee that these unique market conditions will continue for long."

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Make Money Off Your Expiring Lease

With this in mind, you'll first need to determine if your current car lease has any equity.  Leasing companies predict what cars will be worth at the end of the lease term. This amount is called the residual value, and it is the basis of the lease calculation. It is also the amount you can buy the car for at the end of the lease.

Do I Have Equity in My Lease?

If you want to make use of possible equity, your first stop is Edmunds' car appraisal page. There, you can get the trade-in and private-party values of the car. We'll also give you the option to receive an instant offer on your vehicle, which gives you a solid price to have as a point of comparison.

Next, find the residual value in your lease contract. Subtract the residual value from the trade-in value and this is the approximate equity you might have. Knowing the current market value of your leased car and showing the dealership you've done your research on pricing will strengthen your negotiating position.

If your car is a year or more away from the end of the lease term and you want to check for current equity, call your leasing company and ask for a buyout price. Subtract the buyout price from the current market value of the car to see if you have equity.

3 Ways to Turn Equity Into Cash

If you have equity in your leased car, here's how to turn it into cash. Keep in mind, though, that these strategies may not apply to everyone:

1. Sell your leased car and get a check. The fastest way to sell your leased car is to get an Edmunds instant offer, which is good for seven days and is redeemable at participating car dealerships. Just enter a few details about your vehicle and soon you'll have a price for your vehicle that can be paid out that same day.

You can also take your car to any other dealer, not just the one where you arranged the lease, and let the dealer buy the car at the trade-in price. The dealer will pay the leasing company what you owe and give you a check for the equity. However, don't expect the money immediately in this scenario. The dealership will mail you a check once it gets a clear title, assuring that your car doesn't have any outstanding parking tickets. Ask to get the trade-in agreement in writing and state the amount due to you, just in case.

2. Sell your leased car to a neighbor, friend or family member. This method requires a bit of trust, so it helps to sell your car to someone you know. But you can sell to any buyer you find, and it will get you the private-party price for the car, which is higher than the trade-in price that dealers pay.

Here's what you do: After finding a trusted buyer, have that person mail a check for the buyout amount to the leasing company. Once you receive the title (the leasing company will only send it to the person leasing the car), sign it to release your interest in the vehicle, and give the title to the buyer. The buyer can then register the car and pay sales tax at that time. But be careful: If the buyer waits longer than 10 days, the state might try to charge you both sales tax, which would wipe out your profit.

A way to prevent this situation, according to the Auto Club of Southern California, is to pay the sales tax and DMV fees as soon as possible and then return to conclude the deal with the title in hand. This transaction is called a "lease buyout transfer." Contact your state's DMV for more details.

3. Use the equity as the down payment on your next car. In this scenario, the equity in your current car becomes a cash down payment for the new one. Once you know you have equity, you can take your car to any dealer to begin a new lease or sales contract. Negotiate just as aggressively as you normally would. Not all dealers will offer you the same amount for your leased-car buyout, so you might have to shop around for the best offer. The amount should be close to the Edmunds trade-in price.

Experts say you might get more money if you are going "brand to brand," meaning selling a Toyota to a Toyota dealership, although any dealership can handle the transaction.

It's important to make sure all the numbers add up. Agree on the exact amount of equity you will receive and look for that amount in the down payment box on the contract. Alternatively, you can also use the equity to pay the fees required to begin a new lease rather than pay that money out of pocket.



What Creates Leased-Car Equity?

Leasing companies are pretty good at predicting residual values. But because of fluctuations in the marketplace, some vehicles might be worth more than the residual value. Since you have the right to buy the car at the end of the lease term, you can profit from the lease company's inaccurate lower estimate. If, on the other hand, the car is worth less than the residual amount, you can turn the car in without incurring an extra expense.

Dianne Whitmire, fleet and internet director for West Coast Toyota in Long Beach, California, said she uses the equity in returning lease cars to help her customers in a variety of ways. She had one customer with two cars — one was a leased vehicle with equity and one a purchased car that was "upside down," meaning that the loan balance was greater than the car was worth. "In that case, one washes the other" to pay off the loan, she explains.

In many cases, customers use the equity in a returned lease car as a down payment on their next car (either leased or purchased) and consequently find the monthly payment for that car is lower than the payment for the leased vehicle they just returned. Not all returning leased vehicles have equity, of course. But as your lease return date draws near, keep an eye on its market value.

The used car superstore CarMax is another place where you can go to get equity from a leased vehicle. In most cases, you can sell your leased vehicle to CarMax in almost the same way as any other financed car, according to the company. It will appraise the car or truck, then contact the leasing company for a payoff quote and process any equity you might have. CarMax notes that it's important to check your lease agreement for details. Some don't permit such sales.

FAQs

Are leased cars good to buy?
Buying a leased car is a good idea for those looking to break the lease cycle and get into a used car. You're the original owner, so this eliminates the need to look into the vehicle's history or do any research on whether you like the car. The prices may not be negotiable, so make sure you focus your efforts on determining whether the buyout price is fair.

Which cars are leased the most?
Luxury vehicles are the most commonly leased cars. Among the non-luxury brands, the Honda Civic, Toyota RAV4, Ram 1500 and Chevrolet Equinox are the most leased vehicles by volume share, according to Experian.

What is an off-lease car?
An off-lease car is an industry term for a vehicle whose lease has expired and is now being sold as a used car. Many certified pre-owned vehicles are typically off-lease cars since they are a few years old and have relatively low miles.

What is the cheapest car to lease?
The cheapest car to lease would likely be the base model of subcompact vehicle. But in general, a lease can be configured to have as low a payment as you'd like, provided you make a large enough down payment. The key is to strike a balance between a low monthly payment and a low down payment. Edmunds maintains a list of Best Car, Truck and SUV Lease Deals Under $199. Read it for more information on cheap leasing options.


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