Maximizing Your Car Lease-End Equity: A Comprehensive Guide

If you leased your car around 2020, you might be in for a pleasant surprise as your lease term comes to an end. The strong used-car market has created a unique opportunity for lessees to benefit from positive equity. Despite a slight softening in used car values in 2023, prices remain historically high, making it a favorable environment for lease-end equity. In this blog, we will explore how you can capitalize on this equity and make the most of your car lease.

Understanding Lease-End Equity

Lease-end equity occurs when your car’s trade-in value exceeds its residual value—the price you agreed to pay if you decide to buy the car at the end of the lease. This situation often arises when the car’s market value is higher than anticipated at the time of leasing. If you find yourself in this position, you have several options to consider.

Do You Have Equity?

To determine if you have equity, follow these steps:

• Find your residual value: This is listed in your lease contract. If you can’t locate it, contact your leasing company.
• Check your car’s trade-in value: Use online platforms to get an instant estimate based on your car’s year, make, model, and mileage.
• Compare the numbers: If your car’s current value is greater than the residual price, you have equity.

Having equity means you have options. Here are five ways to leverage end-of-lease equity to cash out or lower the cost of your next car.

1. Buy the Car Yourself

If you love your car, consider buying it at the end of your lease term. You can get financing from your dealer, leasing company, or shop for a loan at a bank or credit union. Here are the pros and cons:

Pros

• Keep your car: If you like your current vehicle and it’s in good condition, this is a great option.
• Get a bargain: Having equity means your car is worth more than you’re paying for it.
• Save money: With new and used car prices still high, buying out your lease may be the best deal.

Cons

• Car may no longer suit you: You might need a bigger car or want to try an electric vehicle.
• Financing can be tricky: Your loan payment could be higher than your monthly lease payment.
• Out of warranty: You will be responsible for any needed repairs.

2. Buy the Car and Sell It

You don’t have to keep your car after buying it; you can sell it for a profit. Here are the pros and cons:

Pros

• Get top dollar: Selling it yourself can fetch a better price.

Cons

• Capital gains taxes: You may have to pay taxes on your profit.
• Sales tax: Check your state’s laws for any applicable taxes.
• Short-term financing: This could add to your costs.
• Hard work: Selling a car involves advertising, dealing with buyers, and more.

3. Use Equity as a Down Payment

Some dealers will apply your lease equity as a down payment on your next purchase or lease. Here are the pros and cons:

Pros

• Easy process: Roll your equity into your next deal without additional transactions.
• Any equity helps: In a tight market, any bargaining incentive is a plus.

Cons

• Better deals elsewhere: You might get more money for your trade-in from another dealer.

4. Sell to a Third-Party Dealer

Consider selling your car to a third-party dealer like Carvana or CarMax. Here are the pros and cons:

Pros

• Quick and convenient: Get an online offer and compare multiple companies.
• No need to finance: The third-party dealer purchases the car directly from the leasing company.
• More options: You can buy or lease your next car from the same dealer or elsewhere.

Cons

• Manufacturer restrictions: Some car manufacturers don’t allow sales to third-party dealers.

5. Sell to an Approved Dealer

If your leasing company doesn’t allow sales to third-party dealers, they may permit sales to approved dealers. Here are the pros and cons:

Pros

• Shop around: Try different dealerships for the best deal.
• More flexibility: This option may work when third-party sales are prohibited.

Cons

• Legwork required: Finding the best deal may require effort.

The Bottom Line

Finding equity at the end of your car lease can put you in a strong negotiating position. Whether you decide to buy your car, sell it, or use it as leverage for your next lease or purchase, it’s essential to consider your options carefully. As your lease end approaches, take the time to evaluate your equity and make an informed decision.

At O1ne Mortgage, we understand the importance of making the right financial decisions. If you need a loan to buy your current car or want to lease or buy a new vehicle, our team is here to help. Call us at 213-732-3074 for any mortgage service needs. We are committed to providing you with the best rates and terms to suit your financial situation.

Remember, good credit can help you secure the best deals. Check your credit report and score before diving into the car-buying or leasing process. If necessary, take steps to improve your credit or consider using services like Experian Boost® to enhance your score by factoring in on-time payments such as rent, utility, and phone bills.

Contact O1ne Mortgage today and let us assist you in making the most of your car lease-end equity. We are here to support you every step of the way.