If your three-year auto lease is coming to an end soon, be aware that your car may be worth far more than you realize.
The 2022 average trade-in value for 2019 model-year vehicles is 33% higher ($7,208) than the predetermined residual value — a vehicle’s worth at the end of a lease — according to research from Edmunds.com. This means you may be able to profit off a car you’d normally just turn in to the dealership.
“These values are completely different from what the residual value estimates were,” said Ivan Drury, senior manager of insights for Edmunds. “That’s a good thing for anyone who’s leasing.”
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An ongoing global shortage of microchips — key components needed for today’s autos to operate — continues to impede manufacturers’ production of new vehicles, which has translated into demand outpacing supply. The Russia-Ukraine war could also further disrupt the manufacturing supply chain and lead to more cuts in production.
Demand continues to spill into the used-car market, where prices are up 41.2% from a year ago, according to the most recent data from the Bureau of Labor Statistics. The average price for 1- to 3-year-old cars is above $41,000, up more than 50% from $27,300 in January 2020 (pre-pandemic), according to car-shopping app CoPilot.
Among luxury vehicles, the 2019 Lexus IS 300 tops the list for posting the biggest jump between its current trade-in value and the residual value it was assigned at the beginning of the lease. The car now fetches an average of $31,521 when traded in, 46% higher than the estimated residual value of $21,653, according to Edmunds.
For mainstream vehicles, the Ford Mustang has gained the most: Its average trade-in value is $29,215, which is 68% higher than its $17,363 residual value.
These unexpected higher values mean you may have options when your lease ends to take advantage of that positive equity.
For starters, though, it may be wise to consider buying out the lease when it ends, because you would be getting the car for much less than you would if you were to buy it off a dealer lot.
“If you don’t want to deal with fighting for inventory or paying over [sticker price] for a new car, look at the buyout,” Drury said. “It could be significantly cheaper than going out and getting another vehicle.”
If you are interested in seeing if you can capitalize on any equity in the car — either as a trade-in or for cash — start by finding what your vehicle is worth. You can do this on sites like Carfax.com or Edmunds. Generally, the retail price will be a few thousand dollars more than you’d get by trading it in or selling to a dealership, Drury said.
You also should determine the buyout amount, which is generally the same as the residual value if you wait until the lease is up (this information is in your contract). You may be able to buy it out early, although there could be fees involved in doing so. You could also just buy out the lease and then turn around and sell the vehicle for more on the open market.
Additionally, check whether your financing company allows you to sell the car to any dealer you want (a so-called third-party buyout).
Some automakers have restricted this practice and require you to return the car to one of that brand’s dealerships (i.e., return a Honda to a Honda dealer).
If you are allowed to sell the car elsewhere, you could shop it around to used car dealers to see where you could get the most, Drury said. If you can’t do a third-party buyout, try to sell back the car to one of the same brand’s dealerships instead of just returning it at the end of the lease.