One of the primary benefits while leasing a car is the fact that at the end of the lease, you are able to hand over the vehicle. With that said, you don’t necessarily need to wait til that point if you decide you’re in the market for something new. In fact, you may trade in a leased car before its lease concludes, and in return you can pick up a new car lease. At the heart of the matter is the lease that will outline your obligations.
Your existing lease
If you inspect your current lease carefully, you will notice buried away in the detail is a condition stipulating you will need to pay out the remainder of the lease and any early termination or exit fees should you decide to terminate it. For a trade in, you will generally find that the dealer is receptive to pay this on your behalf. It’s become standard practice actually.
However, as is typically the case, there is no such thing as a free lunch. So the savings you otherwise gain by not being liable for the payout amount, you will lose against the trade-in value of the car. When evaluating the idea, it’s unwise to compare this with a settlement payoff if the car had been financed instead, since a lease pay off will generally be higher on account of the benefits that come with this type of vehicle arrangement. In any case, the leasing company should be your first reference to understand the exact costs, and you may even decide to pay it off yourself, if so inclined.
The new lease
As you will be trading in the existing car, the dealer will need to conduct a valuation to determine its worth. Keep in mind, the higher this is, the more beneficial it is for your trade in, but from the dealer’s perspective, it’s the opposite. So you need to have confidence and trust in the dealer you engage.
If the trade-in value for the car exceeds the payoff for that lease, the surplus funds may be diverted to a new lease. This is referred to as positive equity. On the other hand, if the trade-in value for the car falls short of the payoff for that lease, you will need to make up the negative equity towards the new lease.
One last thing to consider
Whether it is worth trading a leased car for a new car lease will depend on the overall economics of the situation. With that said, people who potentially benefit most from this arrangement are those who are about to, or already have exceeded the mileage allowance in their existing lease. At that point in time, they become liable for fees with every bit of distance they keep driving, so it could be a cost effective solution.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.