- According to data from Edmunds, the typical trade-in value of 2020 leased vehicles is 19% higher than the predetermined residual value, which represents the value of a vehicle at the end of a lease.
- This implies that rather than simply turning in the car, you may be able to profit from that difference.
- Here are some options that you might have if your lease is about to expire.
If you’re among the people who leased an auto in 2020 and are nearing the end of that agreement, you may want to check what the car is worth before turning it in.
According to data compiled by Edmunds for CNBC, the average trade-in value of vehicles leased in 2020 is 19% ($3,965) higher than the predetermined residual value—what the car will be worth at the end of the lease. Even though the average amount of so-called positive equity for 2019 leases was $7,208, the ongoing extra value suggests that you may have options when your lease is up besides simply returning the vehicle.
“Consumers are still advised to shop their lease before blindly turning it in,” said Ivan Drury, senior manager of insights at Edmunds. “The trend of trade-ins beating estimated residuals is still here.”
In 2020, 3.3 Million Vehicles Were Leased
According to Edmunds, 3.3 million leases are expected to have been started in 2020. That represents a 18% decrease from the auto sales in 2019 before the pandemic disrupted them.
Additionally, the proportion of people who lease has continued to decline because manufacturers rarely offer discounts on new cars, whether you buy or lease. Leasing accounted for 18% of new-car transactions by the middle of 2022, down from 27.2% in the previous year.
According to Kelley Blue Book, the average price paid for a used car in January was about $26,510. However, the latest inflation reading indicates that used-car prices are still higher than they would be if normal depreciation were taking place.
“February 2023 trade-in equity is still more than double the pre-pandemic level,” said Thomas King, president of the data and analytics division at J.D. Power.
Models That Are Leased and Offer the Highest Added Value
Among cars leased in 2020, the Mercedes-Benz The GLS-Class has the biggest discrepancy in terms of money between its current trade-in value ($62,257) and its estimated residual value ($50,942). That’s $11,315 (or 22%) more than was anticipated. With a trade-in value of $30,207, the Toyota Sienna is worth $8,741 (or 41%) more than its residual value of $21,465.
When it comes to the most popular 2020 leased cars, both the Honda According to the Edmunds data, the trade-in values for Civic and Accord are 31% higher than their residual values. That translates into positive equity of $4,430 and $5,065, respectively.
Think About Paying Down the Lease and Keeping the Vehicle
There are various ways you might be able to benefit from the positive equity.
To begin with, it might be sage to think about buying out the lease when it expires because you would be receiving the vehicle for a lower price than if you were to purchase it off a dealer lot.
Start by determining the value of your car if you want to try and sell it to offset the positive equity for cash or as a trade-in. You can do this on websites like Edmunds or Carfax.com. The retail price will typically be a few thousand dollars higher than what you could get from trading it in or selling to a dealership.
You Might Be Able to Sell It and Make Money
You also should determine the buyout amount, which is generally the same as the residual value if you wait until the lease is up (this information is in your contract). It might be possible to buy it out early, but there might be costs associated with doing so. You could also simply pay off the lease and then sell the car for more on the open market.
Additionally, confirm that selling the car to any dealer of your choosing is permitted (referred to as a “third-party buyout”) by your financing company. Some automakers have prohibited this practice and demand that you return the vehicle to one of their dealerships (for example., return a Toyota to a Toyota dealer).
If you are permitted to sell the vehicle elsewhere, Drury advised that you shop it around to used vehicle dealers to see where you could get the best price. Instead of simply returning the vehicle at the end of the lease, you could sell it back to a dealership of the same brand if a third-party buyout is not an option.
Source: https://www.cnbc.com/
