Can You Trade In a Car that's Still on a Lease? Here's How

Can You Trade In a Car that's Still on a Lease? Here's How

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If you've ever leased a car, you know all about the benefits of lower monthly payments, factory warranty coverage, and the latest features and technology.

But as the years pass and the miles add up, perhaps you've decided you'd like to trade it in for a new vehicle.

The only problem is you're still making payments, and your lease agreement doesn't end for a significant amount of time. 

Is it better to sell or trade in a car? More specifically, can you trade in a leased vehicle?

Let's look at the details of trading in a leased vehicle.

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How does a lease work?

When you lease a car, it's similar to renting real estate. In both scenarios, you sign a contract, promising to make payments for a set period and gain the use of the property while meeting a set of conditions.

And also, like renting an apartment or a house, you no longer have use of the property at the end of the lease term and must return it to the lessor. 

Further parallels between vehicle and real estate leases include the pledge to keep the car or house in good shape and only use it under normal circumstances. And at the end of a lease, if you give back the leased property in poor condition, you'll be responsible for additional charges. 

Several elements make up a car lease agreement, and each plays a role in determining your monthly payments over the lease term. The capitalized cost (cap cost), residual value, mileage limit, and money factor are among them. 

The capitalized cost is possibly the most critical factor on a vehicle lease when it comes to your monthly payment. Also referred to as the cap cost, this is the vehicle purchase price you and the lessor agree to, whether at full MSRP or a discount. Securing a reasonable cap cost is vital to an advantageous lease contract because it affects nearly every other aspect of the agreement. 

When you lease a car, there are restrictions on how many miles per year you can drive. You have to keep within this yearly mileage limit or pay a penalty when you return the vehicle. Standard annual limits for leased vehicles are 10,000, 12,000, and 15,000 miles. The lower the limit, the less your monthly payments, and vice versa. 

Just like a lender charges interest on an auto loan, lessors apply a money factor to your lease. Also known as the lease factor or lease fee, the money factor is a financing charge added to your lease payments.

The residual value of a leased vehicle is its estimated worth when you return it at the end of the term. Lessors determine residual value by considering the yearly mileage limit, length of the lease, and depreciation. Before you turn in your leased car, you'll have the option to buy it for the residual value, sometimes called the buyout price. 

Car buying on the used market offers you the chance to save thousands of dollars versus purchasing a new one. But where can you go for not only a great price but also a quality vehicle? Shift's certified mechanics perform extensive 150-point inspections on every car and have complete vehicle history reports, so you know your used car feels as good as new. Shift's website has a large selection of fully inspected vehicles located across the country that are ready to go. Whether you’re after a Honda, BMW, Toyota, or Hyundai, Shift has the car that you need.

Is it better to sell or trade in a car?

Whether you decide to sell or trade in your used vehicle, each option offers unique advantages.

While selling your car to a private party usually brings top dollar, trading it in offers convenience and can lower the sales tax you owe on your next one. 

Selling your car can be a laborious process, with hours spent taking pictures, posting ads, and answering phone calls from potential buyers. And it could take weeks or even months to find someone to purchase your vehicle.

On the other hand, trading in is a simple way to receive money for your car and put it toward a new-to-you vehicle. All you have to do is visit your preferred reseller, decide if you'd like to accept their offer, then use that amount as a down payment. 

And when you trade in, you can also save thousands on sales tax. In many states, you only pay sales tax on the amount left when you subtract the trade-in value from the purchase price. This is a significant perk that gives you the chance to keep extra money in your bank account for other obligations. 

Whichever option you choose, visiting online resources like Shift's free estimate calculator can help you determine a fair value for your leased car.

How to get out of a car lease

Whether you want to end your lease early or trade in your leased vehicle for a new car, you have several options. 

First, going over the terms of your lease helps you understand which choice suits you best. Important information includes the monthly payment, residual value, term length, and early lease termination fees. 

Finding the market value of your car assists you in knowing whether or not you can sell or trade it and make a profit. If the worth of your leased vehicle exceeds the buyout amount, you hold positive equity and stand to receive money when selling or trading in. But if you have negative equity on a leased car, you'll owe additional funds when you sell or trade in.

The fastest way to get out of a car lease is to sell or trade it in. Visiting a reseller who sells the same make of vehicle can help secure you a better price. However, you may have to pay extra to complete the transaction, depending on the difference between the residual value and its worth on the retail market. 

But with used cars currently in high demand (due to slowed production caused by the global microchip shortage), odds are you can fetch a reasonable amount for your leased vehicle. 

Another choice is swapping your lease by visiting a specialized website like Swapalease or LeaseTrader. You can post an ad looking for someone to take over your remaining lease payments and divest yourself of your leased car for a fee. You can also ask a family member or trusted friend to take over your lease for the remainder of the term. 

Or simply paying the early termination fee takes your leased car off of your hands. 

Shift takes the hassle out of selling your used vehicle. At Shift, all you'll have to do is enter the make, model, year, and mileage on Shift's easy-to-use website, and you'll instantly receive a purchase offer that's valid for seven days. You can get a fair offer, better than at the dealership, driven by powerful machine learning algorithms and tons of data. And with Shift, there’s no need to spend the extra time waxing and washing the car. A little dirt won't affect the quote, as we fully detail every vehicle ourselves before listing it for sale.

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Author
Shift Editorial Team