Yes, you can sometimes trade in a leased car before the lease ends. However, the process differs from trading in a vehicle you own because the leasing company, not you, holds the title.
Before trying to trade a leased vehicle, contact the leasing company to find out your current buyout amount and whether it allows a dealer or other third party to buy the vehicle. Some leasing companies restrict third-party buyouts, so your options may depend on who holds your lease.
Quick Facts About Trading in a Leased Car
- You don’t own a leased vehicle; the leasing company does.
- Ask the leasing company for the current buyout amount before seeking trade-in offers.
- Compare the vehicle’s current value with the buyout amount to determine whether you have equity.
- Some leasing companies restrict which dealers or third parties can buy out a lease.
- If the vehicle is worth less than the buyout amount, getting out of the lease early could cost you money.
How Does Trading in a Leased Car Work?
Leasing is essentially a long-term rental. A leasing company owns the vehicle while you make monthly payments to use it for a set period, typically two to four years. At the end of many leases, you can return the vehicle or buy it for the amount specified in the lease agreement.
Because you don’t own the vehicle, you can’t simply trade it to a dealer as you would a car with a traditional loan.
Instead, a dealer generally must arrange to buy the vehicle from the leasing company and satisfy the lease. Whether that can happen — and which dealers can do it — depends on the leasing company’s rules.
Some finance companies restrict third-party lease buyouts. In those cases, you might be limited to returning or trading the vehicle at a dealership associated with the same manufacturer, or buying the vehicle yourself before selling or trading it elsewhere. Policies can change, so confirm the rules directly with your lessor.
Does Your Leased Car Have Equity?
A leased vehicle can have equity if its current market value is higher than its buyout amount.
Start by asking your leasing company for the current buyout price. If you are near the end of the lease, your contract may also list a residual value, which is the predetermined amount you can pay to buy the vehicle when the lease ends. Federal consumer leasing rules require applicable purchase-option information to be disclosed in the lease.
Next, determine the vehicle’s current trade-in value.
The basic calculation is:
Current vehicle value – lease buyout amount = approximate equity
For example, suppose a dealer offers $30,000 for your leased vehicle and the leasing company’s buyout amount is $27,000. You could have about $3,000 in positive equity.
If the car is worth $25,000 but the buyout is $27,000, you are about $2,000 short. You would generally need to account for that difference if you want to end the lease through a trade.
Be sure to use the leasing company’s current buyout quote rather than simply adding up your remaining lease payments. The buyout amount is the more useful number for determining whether there is equity in the vehicle.
MORE: Learn the ins and outs of car financials at our Car Affordability Information Center.
How to Trade in a Leased Car
Follow these steps before agreeing to a deal:
- Contact your leasing company. Ask for the current buyout amount and whether a third-party dealer can purchase the vehicle.
- Determine your vehicle’s value. Check its current trade-in value and consider getting offers from dealers that are eligible to buy the vehicle.
- Compare the numbers. Subtract the lease buyout amount from the dealer’s offer to estimate whether you have positive or negative equity.
- Confirm how the lease will be satisfied. Before signing paperwork on another vehicle, make sure the dealer explains how it will pay off the lease and how any equity or shortfall will be handled.
Don’t assume a dealer saying it will “take care of your lease” means the remaining obligation disappears. Review the numbers in the new transaction carefully before signing any paperwork.
What if Your Leased Car Has Negative Equity?
If the vehicle is worth less than the buyout amount, trading it early may not make financial sense.
One option is simply to keep the vehicle until the scheduled end of the lease. When the lease ends, you can generally return the car and walk away after satisfying any remaining obligations under the contract.
Those costs can include excess mileage, excessive wear and tear, or a disposition fee, depending on the lease.
You may also have other options.
Transfer the Lease
Some lease agreements allow you to transfer the remaining lease to another person. The leasing company may charge a transfer fee, and the person assuming the lease will typically need to meet the lessor’s credit requirements.
Check your lease agreement or contact the leasing company to see whether transfers are permitted.
Buy the Vehicle Yourself
Another possibility is to buy out the lease yourself and later sell or trade the vehicle.
This can be useful when the leasing company prohibits a direct third-party buyout. However, consider taxes, registration costs, fees, and other expenses that could reduce or eliminate any equity you expect to capture.
What Happens at the End of a Lease?
If you’re only a few months from the scheduled lease termination, trading the vehicle early might not be necessary.
Depending on your agreement, you can typically:
- Return the vehicle.
- Buy the vehicle for the lease-end purchase price.
- Return it and lease or buy another vehicle.
Before returning the car, review the mileage allowance and condition requirements in your contract. Excess mileage, excessive wear, and other charges can increase what you owe at lease-end.
If you’re considering trading a leased vehicle, the most important first step is simple: Call the leasing company. Find out the current buyout amount and exactly who is permitted to buy the vehicle. When you know those numbers and restrictions, you can determine whether trading the car makes financial sense.
Editor’s Note: We have updated this article since its initial publication. Russ Heaps contributed to this report.
