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You might not own your leased car, but you can still gain lease equity — the difference between the car’s market value and its residual value. Equity in a leased vehicle grows if its market value surpasses the residual value stated in the lease agreement.
If you have lease equity, you could buy out the car from the lease and resell it for a profit, or use it as a down payment on a new vehicle or another lease. If you’re nearing the end of your lease, it’s important to understand what lease equity is and how it could impact your next ride.
Lease agreements typically specify a residual value, which is an estimated value of the car’s worth at the end of the lease. If you decide you want to buy out your lease, this is the amount (plus fees) that you’ll pay to own the car. Lease equity is the difference between a leased vehicle’s residual value and its current market value.
Unlike residual value, which is fixed at the start of the lease, a car’s market value can depreciate or appreciate. Equity increases if your leased vehicle’s market value surpasses its residual value due to slow depreciation or increased demand for that car model. This is called positive equity and most cars that hold the best lease equity are highly reliable with strong resale value.
Negative equity, on the other hand, happens when a leased car’s residual value exceeds its market value. This can occur due to excessive vehicle wear and tear or low demand because the car model has a bad reputation.
Cars that usually retain positive equity include well-maintained models from Toyota, Lexus and Honda. On the other hand, cars that typically depreciate quickly, like some Jaguar and BMW models, are notorious for negative equity.
To calculate your vehicle’s lease equity, you need two numbers — its buyout amount and current market value. Its buyout cost is the residual value stated in the lease agreement plus any charges or fees, such as sales tax and documentation fees.
As for the current market value, you can get up-to-date data with online tools like Kelley Blue Book (KBB) or other vehicle valuation websites. These tools calculate your vehicle’s market value based on its age, condition, mileage and more.
Once you have both numbers, subtract the car’s buyout cost from its current market value to get your lease equity: (Market Value – [Residual Value + Buyout Fees] = Equity).
For example, if the total buyout cost is $6,000 and the market value is $10,000, you have $4,000 in positive equity. If the result is below zero dollars, you have negative equity.
Knowing whether you have positive or negative lease-end equity can help you make the right choice between buying, selling, trading or returning your leased car. If you have positive equity, here are some smart ways to use it:
If you’re ready for a different car, you may be able to use positive equity from your lease to upgrade without spending out of pocket. Ask your dealership about using lease equity as a down payment on your next lease or purchase.
If you’re ready to part with your car and want more flexibility in how you use the equity, you can buy out your lease, sell the car yourself, and keep the profit. You could put the funds toward your next car or use them however you like.
If you love the car and have positive equity at the end of your lease, it makes sense to pursue a lease buyout. If the total buyout cost (residual value and fees) is below the car’s market value, you’re getting a deal. You can finance a lease buyout just like an auto loan, so be sure to compare lenders to find the best rate for your situation.
But what if you have negative equity on a leased car you love? Some lenders will let you roll negative equity into a lease buyout loan. Financially, it’s not favorable to buy out a leased car with negative equity because you’re paying more than the car is worth. In this scenario, it may make more sense to return your leased car and shop around for a used model.
Knowing your lease equity helps you make smart financial decisions when your lease ends. Be sure to check your lease agreement for your residual value and any buyout fees and compare the total cost against the market value of the car. Whether your equity is negative or positive, buying a leased car out of pocket can still be expensive. With RefiJet, you can quickly view lender offers with competitive rates and no prepayment penalties.
Get started with RefiJet today to explore your lease buyout or auto loan refinancing options.
Here are our answers to the most asked questions about lease equity:
Lease equity is the difference between a car’s current worth (market value) and the buyout price, which includes the residual value plus fees stated in the leasing agreement. If the car is worth more, you have positive lease equity.
Discover if you have equity by checking your car’s current market value with a tool like Kelley Blue Book. Next, check the buyout price in your lease agreement, which is the residual value plus any other buyout fees and charges. If the market value is higher than the buyout price, you have lease equity.
You have positive lease equity when your car’s value is higher than the buyout cost, and negative equity when it’s less. With your positive equity, you could buy out the car and sell it for a profit or use the equity as a down payment on a new car loan.
When you buy out a car, positive lease equity becomes an asset because your car is worth more than the buyout price. You can profit from lease equity by buying the car from the leasing company for below market value and reselling it for more.
Yes! If you have positive lease equity, you can buy out the lease and then sell the car to get cash back from the difference.
To calculate lease equity, subtract the leased car’s buyout price from its current market value using the following formula: (Market Value – [Residual Value + Buyout Fees & Charges] = Equity). Any figure above zero is positive equity.
You have positive lease equity if your car is worth more than the buyout price. You can use positive equity to lower the cost of leasing or buying another car.
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