How To Turn in a Leased Car Early for Another Lease
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There are essential steps if you’re considering turning in a leased car early for another lease. Taking the correct approach will maximize the value of your current vehicle and help with a deal on the next one. Otherwise, failing to research and not having all the facts will cost you. Read on for what to know about turning in a leased car early for another lease.
Why Are You Exiting A Car Lease?
Before doing anything else, determine your reason for wanting out of the existing lease. It’s important to note that you’ve made a legal commitment to lease the car for a set period, and you may be subject to penalties for early termination.
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Need For A Different Car
Sometimes needs or family situations change. For example, that sleek two-seat sports car won’t be able to handle a child’s car seat. Or, that gas-guzzling truck could get expensive if you suddenly find yourself with a much longer commute. Still, you may no longer like the current vehicle and want a new ride. In other words, do you NEED a different car or merely WANT a new one? And, are you willing to pay more for the privilege of exiting a lease?
Special Manufacturer Incentive
As you near the end of a lease’s term, most manufacturers will offer special incentives that allow you to exit the current lease and sign up for a new one with a different car. Called a “pull-ahead” program, this may come in a marketing mailer or an offering by the dealer. Typically, this incentive kicks in when three to six months remain in the lease; the leasing company will waive the remaining monthly payments and end-of-lease fees. However, just because the manufacturer makes it easy for you, don’t automatically accept this offer without doing homework.
Excessive Mileage
If you’ve racked up lease miles beyond what’s agreed to in the contract, you will likely be hit with excessive mileage charges. Switching leases may be a savvy way out of this debacle.
Is My Leased Car Worth Anything?
Surprisingly, your leased car may have some hidden value (equity), which you’ll need to determine before shopping for a new lease. Review the lease contract or contact the leasing company for this information. You’ll want to confirm the buyout price for your car. The buyout amount is usually the residual value (the agreed-upon amount that your vehicle is worth at the end of the lease) plus any remaining monthly payment and lease termination fees.
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Next, you’ll want to find out what the market value of your car is. The good news is that this is very easy to determine these days. Numerous online sites allow you to enter the car’s vehicle identification number (VIN) or license plate and a purchase offer pops up almost instantly. Importantly, get multiple quotes as each company may have different preferences for the cars it buys.
Understanding Equity
If the purchase offer is higher than the buyout price, you have positive equity and can use this amount towards your next car. For example, if the lease buyout price for a 2018 Toyota Camry is $18,000 and you’ve received an offer to buy the car for $21,000, you have $3,000 in positive equity.
Knowing where you stand with the car’s equity is a critical first step before shopping for a new car lease. If the best offer is lower than the buyout price, you’re in a negative equity situation, sometimes called “being upside” on a car. If you’re turning in a leased car early for another lease, you may have to fork over the negative equity amount.
Dealing with the Dealer
It may be difficult, but ideally, you should shop for your next car lease without calculating the lease trade-in into the equation. This way, you can focus on getting the best deal for your next car. Once the numbers are hammered out on the next lease, see how turning in the vehicle early changes things. If you received a favorable online buyout offer, ask the dealer to match or beat it. If you’re potentially upside down, keep that information to yourself and see what the dealer can do.
Notably, most pull-ahead offers are only available if you keep car leases of the same brand. For instance, Toyota won’t have an incentive program if you seek to trade in your Ford lease for a new Toyota lease. That doesn’t mean the Toyota dealer (or another brand’s dealer) won’t work with you. On the contrary, they would be eager to put you in a new car. But, the absence of a manufacturer’s subsidy means pricing for the new lease may be less than ideal.
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Recent Changes To Lease Buyouts
The disruption to the automotive industry caused by the pandemic and shortages of critical components has prompted some manufacturers to change their policies on lease buyouts. Supplies of new cars are limited, and dealers are anxious to put as many vehicles on their lots as possible, including late-model, off-lease vehicles.
As a result, some brands will no longer work with third-party purchasers (like Carvana or CarMax) to facilitate the buyout of a lease. Honda is one example. So, if you lease a car through American Honda Finance, you can only directly sell the car to a Honda dealer. You can work around this restriction by purchasing the vehicle and reselling it to anyone you want. But, this method may involve additional sales tax and reduced equity.
On the other hand, if your interest in a new lease involves the same car company as the current lease, then there’s nothing to worry about.
Final Thoughts on Turning in a Leased Car Early for Another Lease
Take into account that the condition of your current car will affect the equity equation. Expect to get less for your vehicle if the tires are excessively worn down, or body damage is beyond normal wear and tear. Even an online purchase offer may be reduced if the buyer encounters surprises with your car. Keep your vehicle in good condition and correct any faults before getting offers. The terms of the lease require you to do this anyway.
Frequently Asked Questions
Q: What happens if you terminate a lease early?
Terminating a car lease early means you’re released from making monthly payments on your leased vehicle. However, this also means that you’ll have to return the car, pay the remaining balance, and all the costs, fees, and penalties that come with early termination. The terms of early lease termination should be disclosed on your lease contract.
Q: What’s the early termination fee?
Terminating a car lease early will make the lease company charge you the early termination fee. This fee is generally the difference between the remaining balance you owe on the lease and the credit you receive from the vehicle’s current value. You may also be charged taxes, transfer fees, and disposal fees. Depending on the lease terms, you might be looking at thousands of dollars with early termination.
Q: Is it a good idea to terminate a lease early for another lease?
A lease trade-in has its pros and cons. On a positive note, trading a lease for a new one is a convenient way to get out of a lease and replace your car with a new model. On the flip side, the monthly payment on a new vehicle may increase.
Get a Curated List of the Best Used Cars Near You
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