Ready to hand over your lease? Record prices for used cars could mean a financial windfall.
For savvy motorists who have leased vehicles they are now ready to return, record used car prices could mean a financial windfall.
After plummeting to recession-era levels in the first few months of the pandemic, the auto market returned to strength early this year. Resellers are struggling to find products to sell, fueling the soaring prices all around. With few new cars on show grounds, motorists have grabbed whatever used cars they can find.
Josh Frankel, a New York-based financial consultant, found his leased 2018 Jeep Compass was worth $ 18,000 in the used car market, almost $ 3,000 more than the cash value of his lease . So, rather than return the SUV, Frankel made a deal to sell it to a used car wholesaler.
âIt couldn’t have been easier,â he said over the phone. “I didn’t have to pay a dime. He came to my house, I handed him the keys and got a check.”
“Lease buy-back prices were set three years ago when dealers never expected used car prices to be so high.”
When calculating lease prices, finance companies estimate the residual value of vehicles at the end of leases, essentially guessing what they will be worth. The numbers help to calculate the monthly payments. But they are also used to set the buy-back prices that customers can pay at the end of leases to keep vehicles.
The people who determine the tailings are normally pretty good at it, said Michelle Krebs, senior automotive analyst at Cox Automotive. But they weren’t counting on a combination of Covid-19 and an overwhelming shortage of semiconductor chips.
âLease buy-back prices were set three years ago when they never expected used car prices to be so high,â Krebs said.
As a result, many leasing customers buy back their leases and immediately resell the vehicles. And, like Frankel, pocketing the difference.
âUsed car prices have gone crazy,â said Wes Grueninger, a Seattle mobile tech developer who leased a 2019 Honda Ridgeline.
In June, he went online and found Carvana offering $ 36,400 for the truck, a convenient premium over the cash value of $ 29,000. It was a deal he couldn’t refuse.
âI wouldn’t have believed it if it hadn’t happened to me,â said Grueninger, who won almost $ 8,000. âWho would pay so much? “
While such offers can be tempting, Krebs warned that buying out a lease doesn’t always work as well. “Lease laws vary greatly from state to state,” she said, stressing that “people have to do their homework as to the nature of the laws.”
That was advice Nicola and Joe Pariseau from Atlanta could have used before deciding to buy out the lease on their Volkswagen Tiguan and then sell it back. At first glance, it seemed like a good move, but they hadn’t calculated into the equation the $ 1,800 in taxes they had to pay to the state before transferring title.
âWe thought we were golden. But in the end we ended up losing a few hundred dollars,â said Joe Pariseau.
Nicola Pariseau added: “It ended up being a fiasco.”
There are other reasons to think twice before buying a rental vehicle and then reselling it. The big question is: what next? If you already have another car, you could be in great shape. But if you have to turn around and buy another vehicle, your profits could be fleeting.
Debbie Mazza was “counting the days” until she could end her lease on the 2018 Toyota Camry, especially when she “found out that my car was $ 5,000 more than my lease said.” it was worth â.
But before completing the buyout, Mazza realized that it would have to replace the Camry with something else. When she started checking with dealers, she found that everything she wanted was either sold out or much more expensive than she had expected.
So Mazza has decided to wait, at least for now, until she finds what she wants, even if she doesn’t make a profit on the Camry.
Consumers of cars, trucks or crossovers whose lease is about to end should keep several things in mind:
- Find the residual value of your lease and check what the rules are for a buyout. They can vary from manufacturer to manufacturer and from lender to lender.
- The residual may not be the same as the buyout price, especially if you are looking to terminate the lease early.
- Research the current market value of the vehicle using online pricing guides, like Edmunds or the Kelley Blue Book, or used car services with online pricing guides, such as Carvana, Shift, or Vroom.
- Check state and local regulations for purchasing leases and then reselling vehicles. In some states, you may be required to pay sales taxes or high fees.
- Once you know what your car will be used for, subtract what it will cost to buy it, plus any taxes or fees, and get a final figure.
- Factor in the potential paperwork and other hassle – while remembering that buying or leasing a replacement vehicle could be more expensive and more difficult right now.