How to Sell Your Leased Car for Profit
When leasing a vehicle, you should realize the majority of your monthly payment usually goes toward paying off the vehicle's depreciation cost.
Let's assume you lease a car worth $40,000 and at the end of the lease the car is only worth $25,000. Most of your monthly payment goes toward paying off the $15,000 in depreciation. At the end of the lease, you can purchase the vehicle for its "residual value" of $25,000.
But you don't have to wait until the end of your lease - you can always ask your leasing company for a "buyout price" at any time during your lease, which will vary depending on how many months you have left on your lease.
When one leases a vehicle, the leasing company uses historical data to come up with what they belive to be an accurate residual value (basically, they try to figure out how much the car will be worth at the end of the lease so they can determine your depreciation cost and residual value).
Historically, leasing companies tend to overestimate the residual value, so when it comes time to end the lease, the buyout price is usually higher than what the car is selling for in the marketplace. In that case, it's a no-brainer - you just turn in the vehicle and don't even think about buying it.
But things changed dramatically between 2020-2022 due to unforseen supply issues. An inventory shortage of vehicles caused a huge spike in used car prices. If you leased a vehicle before the supply crises began, then you may have seen your vehicle gain "lease equity" - sometimes more than $7,000. That's how much more your vehicle is valued in the marketplace compared to your buyout price at end of lease.
When you have lease equity, you essentially have two options:
- Purchase, then sell your leased vehicle
- Trade-in to dealer and get credit for next lease or purchase
How to Sell My Leased Vehicle
There are 2 ways you can sell your leased vehicle: Sell to a private party, or sell to a 3rd party dealer such as Carvana, Vroom, Shift, CarMax or any independent used car dealer.
You'll get the most money if you sell to a private party, but you need to be aware of the tax consequences of buying and selling a vehicle. In most states, if you buy and sell the same car within 10 days, you get a tax exemption on the sales tax. (The buyer is still responsible for paying sales tax, but at least both of you won't have to pay). It sounds simple, but it can be tricky.
In cases like this, you should have a private party buyer lined up before you purchase the car from the leasing company. Also, be sure contact your State's Department of Tax/Revenue to find out the specifics of the tax exemption.
Also be aware that dealers in some States such as California have been price gouging when it comes to inspection fees. In these States, an inspection is required before you can purchase your lease. It used to be around $300, but some dealers have been charging $1,500 or more.
An alternative option to buying then selling the vehicle is to have the buyer or dealer purchase the car directly from the leasing company and pay you a commission (the difference between the buyout price and whatever price they agree to).
If you go this route, you need to find someone that is trustworthy and willing to pay you the difference. Also, many leasing companies have stopped allowing 3rd parties to purchase the lease directly, so this option is not as readily available as it used to be.
As of 2022, these are the only brands that still allow 3rd party direct buyouts of leases:
- Chrysler Capital
- Mazda Financial Services
- Mercedes-Benz Financial Services
- Mitsubishi Motors Credit of America
- Toyota Financial Services
- Volkswagen Credit
How to Trade-in My Lease to a Dealer
Another option if you're ever in a situation where you have "lease equity" - is to get the dealer to offer a price concession if you agree to lease or buy another car from them. This of course will have to be the dealer that you're turning in the lease to, which has to be the same brand of vehicle. What you can do is take the difference in trade-in value and have them discount your next vehicle.
You will not get as much lease equity back using this method, but it saves a lot of hassle and you don't have to worry about taxes and other fees that could have potentially reduced it anyway.
Question & Answer
Q: I made a deal with a neighbor to buy out the vehicle after his 36 month lease. The leasing company demanded an extra 5% on top of the buyout price because I was not related to him, saying it was their standard policy. Is this normal?
Unfortunately, since the lease agreement was between your neighbor and the leasing company, they do not have to honor the buyout price if you're the one purchasing directly through them.
The way around this would have been to have your neighbor purchase the car directly, then resell it to you immediately.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid