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How to Trade in a Leased Car for a New Lease

Car Shopping

If you have a leased car, you know the benefits you enjoy with lower monthly payments, the latest features & technology, and factory warranty coverage. However, as years pass by and your leased car miles add up, perhaps you have spotted a new model, and you would want to trade the current one with it. The only challenge you face, you are still making payments for the current lease, and you have a long way to go to complete. I Suppose you wonder if there is an option to use and trade in your car before you finish paying it off. This article is a guide to give you an insight into how to trade your leased car for a new lease.

Critical Takeaways Before you Trade your Lease Car

Before you trade in your leased car, the first consideration is to find how much it is worth. According to Investopedia, if the current value of the vehicle is more than the remaining amount on your lease, then your vehicle has positive equity and can channel that amount towards purchasing a new car. If your lease balance is more than the car is worth, you will have to raise the different proportions to settle with the dealer. It is possible to trade in your leased car before settling the remaining balance.

Review of some Leasing Basic

When you lease a vehicle, it doesn't belong to you, and you can only build up ownership of it if you make a significant amount of down payment and make a valuable trade-in at the beginning of the lease. This means most leases people use never keep up with the value of vehicles they get considering that their worth depreciates at a higher rate. Therefore, you will always remain "upside-down" at the end of your lease since the actual market value of that vehicle will have become less than the purchase option or the residual. This means you will not have anything to trade with at a dealer to get a new vehicle. Also, you won't have any "equity." The other exception will be if either the sum of the remaining lease payment has become less than its trade-in value or its market value or the earlier payoff amount you got from the company providing you with a lease. According to Lease Guide, this can happen when during the negotiation, a person agrees to make an enormous down payment(cap cost reduction)or one trades their vehicle that was worth more than the trade-in credit. In this scenario, this might give individual positive equity that you can decide to use as a trade-in credit to get a new vehicle. There is also another possibility that you could have some trade-in equity if the lease finance company had underestimated the value of your vehicle at the end of the lease. Therefore, this caused you to make higher payments that resulted in building some positive equity.

How will a Lease Trade-in work for you?

When considering a lease trade-in, it can work for you in different ways. Typically, it is determined mainly by the dealer who plays every advantage that suits them. Here are scenarios to explain that.

When you are at the end of your current lease-the first scenario

when your current lease is almost over and you want a new vehicle, it would be best if you could determine what amount will cost to trade that vehicle (Vehicle Trade-in-value) after comparing that value with the amount at the lease-end residual(purchase option value) as stipulated in your lease contract. If you find out the trade value is higher, you will have positive trade equity that you can utilize as a credit to make a down payment for the new lease or purchase. However, it is essential to know that most leases are structured so that such a situation doesn't occur. In most cases, you will find the trade value lower, which will force you to return your car to the lease company and begin a new lease or purchase from scratch.

When you are at the end of your current lease-Second Scenario

In this scenario, two things are likely to happen, and you should know which one to settle for by asking your dealer and ensuring that you read and scrutinize the paperwork before signing. The first thing your dealer might decide is to pay off the remaining lease balance of your current lease. They will buy the car from the leasing company to place it at his used car lot and then hand you the trade-in credit for that car. Either they will add or deduct the available difference to the new vehicle or lease that you want. If the cost that the dealer will use to settle your lease balance is higher than the credit, he will be providing you with the new car. The functional deficit or negative equity is included in your lease or purchase. If the cost is lower, the difference will be deducted from your new lease or purchase, and the dealer will treat it as a down payment.

According to Sapling, all these figures should be recorded to appear in the new lease or purchase contract. Secondly, the dealer may decide to settle your remaining lease payments and then return that vehicle to the lease company instead of buying it. The trader will then not give you any trade-in credit. In this case, the dealer is likely not to add the payment amount of the previous lease to the new purchase or lease and hide these details. They will also not appear on your new contract. But since the car was returned to the lease company. The standard lease condition will apply. The cost of damages, extra miles, and excessive wear and tear will be sent directly to you because they are your cost, and the dealer will not be part of it. When you are in the early stages or middle stage of your lease and far away from completing it, and you want a new vehicle, this is not a good option to try. This is because the cost of ending such a lease will be very high and will likely exceed that vehicle's trade value or current market value. This means you will have a no-trade credit or high negative value. If they are added to the new lease, it will become prohibitively expensive.

Final Verdict

You are all set if your car trade-in value is more than its current loan balance. You can proceed to pay off the remaining old loan and use that difference toward paying for the new vehicle. But if the cost remaining is more than the trade-in value, you need to make up for the remaining difference. In such a case, it would be best to wait to find a better financial move until you reduce your loan a bit more.

Dana Hanson

Written by Dana Hanson

Dana has extensive professional writing experience including technical and report writing, informational articles, persuasive articles, contrast and comparison, grant applications, and advertisement. She also enjoys creative writing, content writing on nearly any topic (particularly business and lifestyle), because as a lifelong learner, she loves to do research and possess a high skill level in this area. Her academic degrees include AA social Sci/BA English/MEd Adult Ed & Community & Human Resource Development and ABD in PhD studies in Indust & Org Psychology.

Read more posts by Dana Hanson

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