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    How To Make A Profit On A Car Leasing Deal

    Damien Frost
    Damien Frost - 2020-11-17T22:00:00.000Z
    Profit On A Car Leasing Deal

    According to Edmonds, more Americans than ever before are choosing to lease vehicles instead of buying them. At the start of 2020, a record 4.3 million car leases expired, indicating a drastic shift in consumer sentiment.

    The reason why many people are wary of leasing is simple; even though they’re making monthly vehicle payments, they’re not building any equity. At the end of a leasing period, the individual simply walks away from the vehicle. To many, this isn’t a prudent financial decision and doesn't amount to much more than simply renting the car.

    Although this may be true in some cases, there are instances in which you can sell your leased car for a profit. To understand how this can be achieved, we must first review what a lease is and how to negotiate a lease buyout.

    When leasing a vehicle, the auto company will require you to make an upfront payment, followed by subsequent monthly payments for an agreed-upon period, during which you can use the vehicle. Most lease agreements include a buyout option, meaning the lessee can choose to purchase the car at a pre-set 'buyout' price. If the agreement doesn’t have a buyout clause, you can always approach the leasing company to negotiate a buyout agreement.

    If your leasing term is up, it's a good idea to do some research on the vehicle’s make and model and see if the buyout price is, in fact, less than the current market value. If so, the car can be purchased and potentially sold at a profit.

    What Are My Best Options When My Car Lease Ends?

    When your lease runs out, there are three main options: walk away, trade-in, and purchase.

    • Walk away: If your leasing period expires, you can walk away from the vehicle. If this option is chosen, the auto agent will charge you a disposition fee, which typically runs between $300 and $400. Furthermore, you may be charged for any damages along with a mileage fee if you went over the agreed upon mileage limit
    • Trade-in: In some instances, you can trade-in your leased vehicle to a used car dealership. When this is done, the dealer will pay off the remaining balance and purchase the car from the owner. It’s essential to understand that this will only work if the leasing buyout price is less than the vehicle's trade-in value. If it isn't, there’s little incentive for a dealership to buy the car
    • Purchase: As stated in the opening section, most agreements come with a buyout clause. To understand how this works, we must first go over two terms: residual value and market value. Residual value refers to the estimated worth a vehicle has at the end of the leasing term. This number is essentially an educated guess and is determined before the leasing contract is signed. For example, if the commitment is for two years, the residual value is how much the auto company believes the vehicle will be worth in two years. On the other hand, market value is the actual resale value of the vehicle based on current market conditions. If your leased vehicle's market worth is greater than its residual value, purchasing the car may be the best way to get out of your car lease deal

    Lease Vs. Purchasing A Car

    When it comes to leasing vs. purchasing a car, most people get hung up on the fact that leasing doesn’t build equity. Therefore, they don't take the time to consider the advantages of leasing. 

    • Lower monthly payments: When you lease a vehicle, the monthly payments are lower than what a typical auto loan would carry
    • Better warranty protection: Leased vehicles are usually new and still under warranty, meaning maintenance costs will be much lower than those associated with purchasing an older used car
    • Smaller down payment: The average auto loan requires a downpayment of 11.7%, which is much greater than the average down payment required for a lease
    • Option for a new vehicle every two to four years: The average leasing agreement has a two to four-year term, allowing the lessee to get a new car every couple of years
    • Possibility for lease equity: It’s often the case that at the end of the leasing term, the market value of the vehicle is higher than the residual value, meaning you can either purchase the car or trade it in at a profit

    How To Finance A Car Lease

    When looking at car leasing deals, you may find yourself wondering how to finance the monthly payments. In the best-case scenario, you find a way to make the costs fit within your monthly budget. Unfortunately, this may not be a reality, and you’ll have to look to other means of financing. 

    Some good alternatives include:

    • Personal loans: If you have decent credit, you may be able to secure a low-interest personal loan to help with the monthly car payment
    • Consolidation loan: Debt consolidation is another option that can help you better afford your monthly auto payments. When you consolidate high-interest debt, such as credit card arrears, you may end up saving hundreds of dollars a month on interest payments. You can put these savings towards the cost of leasing your car
    • Credit card: Although not an ideal option, credit cards may be a suitable short term solution for affording auto payments