By Shannon Bradley
A shortage of semiconductor chips and other car parts has led to low new car inventory, higher used car demand and skyrocketing car prices. This supply chain disruption caused by COVID-19 has resulted in an unusual rise in leased car values — leaving lessees wondering exactly how to take advantage of their car’s equity.
“These are such strange times to have a lease coming to an end. My car is worth more now than it was when I leased it,” says Ryan Antkowiak, a Twin Cities, Minnesota, financial adviser and certified financial planner.
Antkowiak, like many lessees, is finding his car’s buyout price originally set in the lease agreement is much less than the car’s current market value — in his case $6,000 less. In fact, a 2021 iSeeCars analysis shows cars leased three years ago have, on average, $7,000 worth of equity built up.
If you’re near the end of your lease and find your car has unexpected equity, here are some ways you might be able to tap into it.
1. Sell to a third-party dealer
In the past, lessees have worked with third parties, such as Carvana /zigman2/quotes/206651606/composite CVNA +19.54% , Vroom /zigman2/quotes/218801255/composite VRM +10.42% and Shift, to buy out their lease, giving them access to the equity without having to first buy the car themselves. However, many captive lenders — the financing arm of auto manufacturers — have put a stop to this practice . Technically, car manufacturers own the leased car, their dealerships need cars to sell, and they want cars turned back in.
In a July 2021 news release, American Honda /zigman2/quotes/207173990/composite HMC +1.32% Finance Corporation announced, “… lease customers can purchase their leased vehicle but are otherwise required to return or trade-in the vehicle to a Honda or Acura dealer only.”
Leasehackr, an online community dedicated to car leasing, provides an up-to-date list of lenders that no longer allow third-party buyouts . Some captive lenders may still allow third-party buyouts but discourage it by charging third parties a much higher buyout price.
2. Sell to a participating dealer
One possible approach for accessing your leased car’s equity is finding a participating dealer willing to purchase it.
Leasehackr co-founder Michael Sin says, “Someone with a GM /zigman2/quotes/205226835/composite GM +4.03% lease might be able to find a GM dealership who would be willing to purchase the car directly from GM. The downside of that is the customer might not get the highest trade-in price, compared to a company like Carvana or CarMax /zigman2/quotes/204412041/composite KMX +4.29% , but I think it’s definitely an option on the table and something people should consider instead of just returning their lease. Right now, turning in their lease is basically the worst possible scenario, because their car is probably worth a lot more than the buyout.”
Brian Evans, a lessee from the Indianapolis area, worked with Swapalease.com, a marketplace for car lease transfers, to auction his car to its dealer partners. Originally looking for an individual to take over the final 12 months of his lease, Evans ended up selling the car and receiving a check for $6,000. Evans says, “This was a car I put on Swapalease.com just to get rid of it. I had no idea that I could profit off of this lease. I got out of my lease, I got $6,000, and I went and put that down on my wife’s new, used car.”
3. Buy your car to sell or keep
Some lessees are working around captive lender restrictions by buying their leased car themselves, and then selling it to a third-party dealer, private party or really any buyer they choose. It’s an approach that does require more effort.
For example, if you don’t have cash on hand, you would need short-term financing, such as a bank or credit union loan, to pay for the car. And you would then need to register and title the car before you can sell it, which could mean paying sales tax. Some states do have a grace period, providing time to register and sell a car before sales tax is due. Requirements vary from state to state, so you should talk to your local Department of Motor Vehicles before going down this path.
Finally, if a lack of car inventory prevents you from buying or leasing another car, or you just like your leased car, you might decide to keep it. In that case, a lease buyout loan could help with financing.
Know what your car is worth
Before you decide what to do with your leased car, take time to research your car’s current market value compared with the lease buyout price. Have an idea of the amount of equity and your options for tapping into it.
Eddie Lubach, a lessee from Bayonne, New Jersey, provides this advice: “Do your homework. A lot of times there are opportunities people don’t even know about, because they don’t ask or investigate. And here I am. I sold my lease and am getting a check back for about $3,000. Whoever heard of that?”
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Shannon Bradley writes for NerdWallet. Email: email@example.com.