SHOPSMART AUTOS – CUSTOMER INFORMATION – MAY 22, 2021 (Part 2)
Find Out the Car’s Value at the End of the Lease
The biggest thing to consider at the end of the lease is the car’s value; this will determine whether or not it makes sense to return the car or buy the car. Several factors will be used to calculate the value of the car at the end of the lease, but all you need to know is whether or not the equity on the car is positive or negative. When you originally signed the lease, the car was given a residual value, which is the expected value of a car at the end of a lease. If your car is worth more than the residual value, that means the equity is positive. In that case, you would benefit from buying the car. Once you buy it you could either hold onto it or sell it for a profit. You also could trade in the car and put the value toward a new car. If you don’t want the responsibility of owning a car, you may be able to still trade it in and put the value toward a new car lease. If the equity on the car is negative, you’re probably better off returning the car. You also could renew or extend the lease, in which case the residual value of the car would be recalculated based on the end of the renewal or extension. It’s possible – if the car is taken care of and if it’s market value increases – that the equity of the car will change from negative to positive. One reason people choose to extend a lease is to give themselves a little extra time to get the car in tip-top shape before it’s time to get it inspected. If the car has mechanical issues that need to be repaired or minor interior or exterior damage – such as carpet stains or clear-coat paint scratches – you want to get fixed before the lease ends, a lease extension may be your chance to get that work done before the return inspection.
Be Prepared for the End-of-lease Inspection
Typically 90 days before the end of your lease, you’ll receive a call from the leasing company about setting up an end-of-lease inspection. This is the leasing company’s opportunity to document any costs that may be incurred by the manufacturer once the lease ends. Inspectors look at a few specific items when they do an end-of-lease inspection, including:
- Exterior dents and scratches on the car’s body and wheels
- Cracks and pits on the windshield and windows
- Severe tears or stains to the upholstery
- Extreme or unusual tire wear
- Remove all personal items from the car
- Wash the interior and exterior of the car
- Get the car professionally detailed
- Get rid of scratches using touch-up paint from the manufacturer
- Hire a paintless dent remover to remove minor dents and dings
We find and negotiate for the car you want on your behalf. Then we deliver it.
In some cases, you may want to end your car lease before the leasing period is up. Common reasons for ending a car lease early include wanting to upgrade to the newest model of the vehicle or wanting a new model entirely. Unfortunately, most leasing contracts do not have provisions or conditions where you can get out of your lease early. Even so, you have a few different options if you need out of your existing lease. Read on to explore a few ways you can break your lease.
Exchanging Your Car Lease
Whether or not you can exchange your car lease is based solely on your leasing contract and your ability to find a suitable new leaseholder. Currently, around 80% of leasing companies will allow you to exchange your lease, including Carlease.com, but not all financial institutions allow these types of transactions. If your leasing company does allow lease exchanges, they will do so for a fee. The cost of exchanging a lease pales in comparison to the costs of terminating a lease early, and the individual taking on the lease exchange will usually absorb most of these costs. Sites like Swapalease.com are marketplaces that connect lessors with people looking to take over an existing lease. It’s also important to check and see if you’ll retain any liability once you’re out of the lease. Around 20% of leasing companies may require you — the original leaseholder — to retain a portion of the liability after the lease has been exchanged. That means you could still be liable for any excessive damage to the vehicle or missed payments. So if the individual who takes over your lease racks up excessive wear-and-tear charges, additional mileage charges, or refuses to pay, the leasing company can return to you to demand payment. In addition, your credit could get pretty banged up if the new customer is late on their payments or doesn’t pay. In the event the new lessee allows their auto insurance to lapse, things can get even stickier. Because of all of these potential negative implications, it’s best to only exchange the lease to someone you know and trust whenever you’re required to maintain some of the liability.
Selling Your Car Privately
Car leases usually include provisions that allow you to purchase the car outright during the term. This can make a lot of sense if your buyout or payoff of the lease is lower than the resale value of the vehicle – especially if you’re thinking about upgrading to a newer model or leasing a different car. For instance, if the buyout or payoff on the lease is $25,000, and the market value is above $30,000, you could purchase the vehicle from the leasing company and sell it. While it may cost you a few hundred dollars in fees, it’s a small price to pay to get out of your lease early. However, to execute this strategy, you’ll need the payoff amount, and you’ll need to know your vehicle’s current value. Even if the market value of the vehicle is a little bit less than the buyout price or payoff, it still may make dollars and sense to use this strategy.
Trading Your Car to a Dealership
This method is similar to the “Purchase and Sell the Vehicle Privately” strategy — except, once you get the payoff or buyout amount, you trade the vehicle in at a dealership. It’s important to understand with this option the dealership will only offer you wholesale value for the car, which will be significantly lower than what you would get if you sold it privately. Although, if you’re not satisfied with the existing car you’re leasing or it’s causing you more trouble than it’s worth, taking a loss on the trade-in may be worth it if it means you’ll be able to upgrade to a newer model or lease a different car. The primary benefit of this option is the dealership will take care of the purchase from the leasing company, and you will not need to worry about taxes. In the event you do decide to trade the vehicle in at the dealership, it’s imperative you get the payoff amount directly from the leasing company to avoid any unnecessary shenanigans.
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