When your lease agreement comes to an end, you may be wondering what to do next. A very common option for many is to trade your lease in for a new car. But how should you decide what to do, and what do you need to know?
Here’s everything you need to know about trading in your leased car.
What is the best option at the end of a car lease?
At the end of your car lease you have three options: trade in your lease for a new leased car, give up your lease entirely, or buy your leased car from the dealer.
Trade in for a New Lease
Many people lease cars for the simple fact that they can get a new car every few years with no hassle. When your lease period ends you can give your leased car back to the dealership and select a new car, renegotiating the terms of your lease (such as mileage and lease period). This is a very popular option since you can get a brand new car and keep up with the latest upgrades and technology.
Give up Your Leased Car
Some people also decide to give up their lease entirely at the end of their lease period. Maybe leasing wasn’t right for them and they found it too restrictive, or maybe they no longer have a need for a car. Whatever the reason is, giving up your lease entirely is as easy as handing over the keys and signing some paperwork.
Buy Your Leased Car
At the end of your lease period you may not want to give back your car at all. If you love the way your car drives and don’t want to lease anymore, you may decide to buy your leased car. Most leases allow for this and there will be a section in your lease contract that outlines the buyout process. The buyout price of your leased car will be predetermined and listed in your contract as the residual value.
How does trade-in work with a lease?
If you are interested in trading in your lease at the end of your lease period, it is quite simple. All you have to do is return your car to the original dealership. You can then select a new car to lease. You will be able to select a new car that may or may not be the same make and model as your previous lease. You will be able to restart your lease with new terms that you can negotiate, such as:
- Lease period
- The car’s market value (this number is used to determine monthly payments)
- Mileage allowance
- Acquisition and other fees
- Other usage restrictions
When you get your new lease, you should review the residual value of the car and the money factor. While these are terms that you cannot necessarily negotiate, you should know whether or not they are fair before signing on the dotted line.
- Residual Value: The residual value listed in the contract is what your car’s value is estimated to be at the end of your lease period. It is essentially the car’s original market value minus the depreciation that occurs while you are driving the car.
- Money Factor: The money factor is similar to the interest rate on a loan. It is also referred to as a “lease fee”, “”lease factor”, and “lease money factor”. The depreciation on the car plus the money factor will determine your monthly payments. The money factor is expressed as a small decimal which you can multiply by 2400 to translate to an approximate APR. Before you sign your lease agreement you should be aware of what the prevailing money factor rates are so you can be sure you are getting a fair deal.
If you are looking to trade in your car lease before the end of your lease term, it may be a little bit more complicated. You will be responsible for additional fees and may be responsible for the remaining monthly payments, depending on how your lease is worded.
Is it worth buying car at end of lease?
In today’s market it might be worth it for you to purchase your car at the end of your lease period. As we mentioned before, the residual value of your leased car is determined at the beginning of your car lease and cannot be changed based on the car’s actual value at the end of the car lease. Today’s used car market is still experiencing a high amount of demand, which means that used cars are worth much more than they were a few years ago.
Even if you are not interested in keeping your leased car, you can most likely make a profit by purchasing your car lease and selling it privately.
You should consider buying your leased car if any of the following apply to you:
- You really like your car and are not interested in getting a new one
- You are over the allotted mileage and will owe additional fees
- You have significant wear and tear and will owe additional fees
- Your car’s current value is worth more than the residual value listed in your contract
If you do not have the money on hand to purchase your lease you can secure a car lease buyout loan. If you choose to keep your car you will have an asset at the end of your repayment period. If you choose to sell your car privately you can use the money from the sale to repay your loan and keep the difference as profit.
Securing a car lease buyout loan is easy if you have relatively good credit and financial history. You can use a company that specializes in car lease buyout loans to make this process even easier. If you are interested in securing a car lease buyout loan, be sure to take the following steps to prepare:
- Ensure your credit is in good shape by reviewing your credit report for any errors.
- Make full and on time payments to your current lease.
- Resist the urge to open any new lines of credit.
- Research prevailing rates.
Getting a free quote from Auto Approve can help jumpstart this process for you.
That’s everything you need to know about trading in your leased car.
If your lease is coming to an end and you want to purchase your car, consider applying for a car lease buyout loan with Auto Approve. Our agents can help answer any questions you may have and help you navigate the loan application process.
Don’t wait! Contact Auto Approve today to get started!