May 2, 2022
You May Have Equity in your Leased Automobile.
For those of you who leased a car and are coming up on the end of the lease period, you may want to review your contract. As you can see from the chart below (the “Manheim Used Vehicle Index), used car values have soared. Every wonder why the dealership is being so nice to you by offering you the ability to turn your leased vehicle in before the contract has expired, even if you are over on your mileage?
If you have the typical 36-month lease, you likely leased your vehicle in 2019. The monthly lease payment is calculated by the finance department, or finance partner, of the dealership. The length of the lease, miles driven, interest rates, and an estimate of the residual value of the vehicle are all part of that monthly car payment calculation. If you look at your contract, you can find the residual value. You can look online for your model’s value from Kelley blue book, or any number of used car dealerships like AutoNation or CarMax. Your model is likely selling for a higher price than what your residual value is. From there, you have a few options. You can purchase the vehicle outright and sell it privately or to a used car dealer. Dealerships are starved for inventory. Often, they will take over the last few lease payments AND pay you most of that remaining equity which you can use to purchase a car through them. You can also negotiate with the dealership that leased you the vehicle to use that equity towards a new lease, or you can ask them to pay you some percentage of the equity value without having to buy the car out (this is what I did back in 2017).
Knowing what your car is worth (even if it’s not “technically” yours) might be worth the effort.
Jeff Anderson, CFA
Presidio Capital Management