Looking for a way to pay off that holiday tab? Check the garage. If you have a car at the end of its lease, it could be a gold mine.
The last three years have been tumultuous in the world of used cars, for a number of reasons. First, the recession meant that consumers who were trying to economize opted to shell out for used rather than new cars. As a result, the demand for older vehicles started to increase. The credit crunch, which got in the way of new-car financing for many consumers, sent used-car prices even higher. And then came the earthquake and tsunami in Japan last March. These tragic events reduced the supply of new Hondas and Toyotas coming into the United States, sending demand for used ones through the roof.
The demand is highest for low-mileage cars that have been well cared for. In 2009, the average price of a three-year-old used car rose 5.71 percent from its 2008 level, according to Edmunds.com. In 2010 the increase over the previous year was 12.18 percent, and in 2011 it was 6.31 percent. Result: the cars coming off lease now are worth, in many cases, thousands more than their “residual” or “buyout” values—in other words, the projected value of the car at the end of your lease. This is particularly true of European and Japanese cars, says Phil Reed, senior consumer-advice editor at Edmunds, though it’s happening with some domestic cars as well, particularly those with above-average fuel efficiency.
Though it may seem daunting, it’s actually easy enough to put that extra money in your pocket. First, take a look at the lease contract (or call the leasing company) for your buyout price. Next, use a car-pricing site like Edmunds, TrueCar.com, or kbb.com, to compare the buyout price with your “trade-in value” (how much a car dealer would pay you for the used vehicle) and the “private-party price” (how much you could get for it if you sold it yourself).
Of these two courses, the easier by far is to sell the car to a dealer. It doesn’t have to be the same dealer, or even the manufacturer, you bought the car from—any dealer will do. The dealer will typically pay the leasing company what is owed and write you a check for the difference between that price and the trade-in price. Say you’re ready to turn in a 2008 six-cylinder Toyota Highlander. According to Edmunds, the residual value for the car is $13,537 and the trade-in price is $16,967. That means you’ll net around $3,400. If inventories on your model are particularly low—and you can search an online classified site to know—you may even be able to negotiate a bit above the trade-in price, Reed says.
If you’re willing to do a little more work, you can sell the car yourself at or around the private-party price.The private-party price on the afore-mentioned Highlander is $18,451. If you’re able to sell the car for that price, you’ll net closer to $4,900.
One complicating factor in this transaction (in addition to the challenges of being your own used-car dealer) is sales tax. If you pay it when you buy the car from the leasing company, you’ll eat up most, if not all, of your profit. The workaround, Reed explains, is to have your third-party buyer write two checks—one directly to the leasing company for the sales tax, and the other for the difference between the residual value and your agreed-on price to you. Then, when the title arrives, turn that over to the buyer. This back-and-forth is easier if you and the buyer know each other.
Finally, if you’re not at the end of your lease but want to get out anyway, the opportunity to make a quick buck makes some cars more attractive to lease-swapping companies—and their customers.
“The current state of the auto industry means lots of differences in supply and demand for different vehicles—and it changes from month to month,” says John Sternal, vice president of Leasetrader.com. “You can’t just wake up one day and say you’re going to make money off your lease. You have to do your homework.”
With Arielle O’Shea