It is no secret that there is currently a shortage of used cars, nor that the prices of used cars have increased significantly. The median used car price at Cars.com dealers was $ 21,998 in June, up $ 5,099 – or 30.2% – from June 2020. If you have a rented car or truck , it will probably be worth more at the end of the lease than the “residual”. value ‘that was written into your rental agreement when you got the car.
Related: Why are car trade-in values soaring?
The “residual value” is the leasing company’s best estimate of the value of the vehicle when you return it. This value was an important factor in determining your lease payment. But in the meantime, the production of new cars was first affected by the COVID-19 pandemic, and now the stock of new cars has been affected by the semiconductor chip and other supply shortages. Having fewer new cars with higher prices has increased demand for used cars, reduced supply, and caused values to jump.
The older your lease, the further the residual value can be. If you just return the car at the end of the lease, the leasing company pockets that gain in value over what they thought the car would be worth. But there are ways to enjoy some of that gain for yourself if you take a step soon – prices go down as well as up, and current inventory shortages are more likely to be measured in months than in years.
A wild card to keep in mind: When considering different options for buying, selling, or trading in a rental car, be sure to research your state’s sales tax rules carefully for what you want to do. States have different and complicated rules for taxing vehicle purchases, rentals and lease buyouts. You don’t want to end up sending the bulk of any earnings to the tax collector.
Do the math
You will need to do your research to determine if these trends apply to your leased vehicle. The prices of the most popular SUVs – and especially pickup trucks – have increased more than those of other vehicles. Vehicles with a higher original price may also have a larger spread. If your rental car hasn’t had a big boost, you can just end the rental and go.
You can research the approximate value – either the exchange value or sale to a private individual – with online calculators, or you can get a more precise value by bringing it to a dealer for an exchange or exchange offer. purchase. You can also get an offer online from a local dealership through Cars.com here.
Compare these appraisals to the lease buyout price – usually the sum of the contract’s residual value, any payments you still owe, and a “disposition fee” (an end-of-lease fee required by many contracts). Your leasing company can quote you the total amount of the buy-back. The difference between what you will owe and the current value of the vehicle is your equity in the vehicle, a measure of your potential earning.
After that ?
Now that you have an idea of how much money is on the table – and if it will be worth it – there are ways, depending on your situation and the needs of your vehicle, to try and exploit that equity for you – even. Among your choices:
Keep it. If you like the vehicle and it meets your needs, the easiest choice is to simply buy it from the leasing company. You’ll get a discounted price – a used car worth more than what you pay for it – and you won’t find another used car that you know better than the one you’ve driven and maintained. You would have to pay a premium in this market to get a different car, bought or leased. Its purchase also ends the ongoing payments associated with the lease.
You don’t have to wait for the end of the lease. You can call your leasing company and ask for the early buy-back price. Also check the sales tax treatment in your state for a buyout. If you don’t have the cash on hand, many lenders who provide auto loans and auto refinance loans also provide lease buyback loans. Your leasing company can also make a pitch for your lending business, but, as always with any new credit, be sure to shop around for the best interest rate.
Return it free of charge. The end-of-lease “disposition fee” can be $ 350 or more. The excess mileage can cost 25 cents per mile. Minor dents to the bodywork and scuff marks to the wheels could add more. The increased value of the car gives you some leverage to negotiate these costs with the dealership, especially if you are also looking for a new lease or purchase.
Sell it. It’s trickier, but it’s better than returning the vehicle if your equity is substantial, and in some cases you won’t have to buy the vehicle yourself in order to sell it or use it as a trade-in. The reasons you don’t want to keep the vehicle yourself may be that you don’t like it, struggle to make payments, or your post-pandemic life has changed in a way that means you don’t need the vehicle or you need another type of vehicle. Among your options:
- The easiest might be to just sell it to a new car dealership or a local or online used car dealership – they really want cars right now. It is a process similar to selling a vehicle that you still have a loan on. You’re unlikely to get the highest price, but you save the remaining lease payments and get a check for your equity, and the dealer can handle the details.
- If you want to replace the rented car, use it as a trade-in. You don’t need to find the money to buy it first (including taxes) and your extra equity is applied to your new ride. As with any trade-in, you should be prepared to negotiate the trade-in price as well as the price of the new vehicle – and be prepared to visit more than one dealership. Since you have already carefully researched the value of the leased car and your equity, you are in a good position to recognize a fair deal.
- Selling to a private person may earn you a higher price than other options, but not necessarily more bottom line if you have to buy the car first to avoid a complicated selling process that might put a stranger off. Some leasing companies, which are often auto manufacturer finance agencies, will allow a so-called “third party buyout” to sell the leased car to someone else. But many do not allow it, and others set a higher buyout price for third parties.
- You could take the opportunity to pass on a good used car to an interested friend or family member. Some states offer favorable tax treatment for the transfer of property within families; it is up to you to decide if you pass on your win as well.
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