Leasing is a great option for people who will only need a car for a short time, or don’t feel like going through the hassle of owning a car. Leasing is especially appealing to people who want to avoid haggling over unloading their old junker for something new: after all, the dealership has to take the lease back. And as long as you have a valid car insurance policy, you can simply turn in the old car and drive out in a spanking new one in no time.
But before you turn your lease in, you may want to take a look at what your car is worth on the used market. All of a sudden, owning a late-model used car is a bit more appealing than it used to be.
To explain why, we need to explain how leases work. It’s a bit like renting an apartment; you pick the car and you pay the dealer every month, with a set time for the lease to expire. When you bring your lease in, you can choose to buy it by paying off what the dealer calls “the residual value”; essentially, the price of the car less what you paid in lease payments and with depreciation factored in. This is in your lease agreement: the dealer has figured this out before you drive off the lot.
Here’s the thing: lately, late-model used cars with good mileage are selling really well. Why? Because a lot of people who used to lease are now just buying used cars. Especially hot, for reasons that are obvious whenever you pull into a gas station, are cars that have a high mileage to the gallon.
This is where economics kicks in: the supply of late-model used cars that haven’t been driven that much and have high gas mileage is not exactly a huge one, and the result has been a massive spike in their selling values. Nobody was expecting the used car market to suddenly have a price jump, which means all those lease agreements now coming up have residual values that are often below, sometimes thousands below, the price of the same car used.
How will you know? Simple: just check Kelly’s Blue Book or similar price guides online. And, in fact, that’s just a starting point: sure, you could pay the residual, but you can also haggle down the price even lower, ten to fifteen percent lower. That’s because your car dealer, especially lately, would rather have the cash in hand from you than fill out the paperwork and put your lease out as a used car.
Or, if you’d rather get another car, you’ve still got plenty of options. If your car is in good condition and worth more than the residual, you can literally sell the lease back to the dealer and pocket the cash: after all, dealers want to sell used cars while the prices are high. Or, if your lease is coming up, see what deal he’s willing to make to get you a new lease. For some dealers, it can be worth a new lease at a lower payment in exchange for getting his hands on your now-valuable car.
In short, if you’re driving a lease right now, and you want to turn it in, you’ve got some genuine options on your plate. So drive a hard bargain and ask a lot of questions: after all, how often do you have one over on your dealership?