Should I Trade In My Car For A Lease?

If you’re ready to get a new car, one of the first things you need to do is decide what you want to do with your current car. One option is selling it to a private party, but finding a buyer on your own can be a headache. To avoid this problem, you could trade your vehicle in instead.

“Trading in” means giving your car to the dealership in exchange for credit that can be put toward your new car. Many people assume that you must use this credit from your trade-in to purchase a new car, but that’s not the case. You also have the option of trading in your vehicle in exchange for a lease on a new car.

Now you’re probably wondering, “Should I trade in my car for a lease?” Here’s what you should know before making this decision:

How Does Trading In A Car For A Lease Work?

The process of trading in a car for a lease is similar to the process of trading in a car in order to buy a vehicle. But first, it’s important to know how leasing works.

If you choose to purchase a car, you are agreeing to pay the cost of the vehicle. On the other hand, if you lease a car, you don’t pay the cost of the vehicle. Instead, you pay for the depreciation that occurs during the course of the lease, plus fees and interest. You aren’t required to pay all of this upfront, though. The total cost is divided into equal monthly payments that usually continue for two to three years, depending on the length of your lease. Once your lease is over, you must bring the vehicle back to the dealership.

So how does trading in for a lease work? Consider this example: say your current car has a trade-in value of $5,000. You are interested in trading in this vehicle in exchange for a lease on an SUV. After negotiating with the dealer, you agree to lease the SUV for a total of $12,000 plus interest. This sum will be broken down into smaller monthly payments over a period of 36 months.

If you trade in your current car, you could apply the $5,000 in credit toward the cost of this lease. This would bring the total cost of your lease down to $7,000.

What Are the Benefits of Trading In My Car For A Lease?

If you are considering trading in your car for a lease, it’s important to weigh the pros and cons.

Trading in your car for a lease can make leasing a new vehicle more affordable. As you can see from the example above, applying your trade-in value to your lease will drastically reduce the total cost of the lease.

Trading in your car for a lease can make your monthly payments more affordable, too. This is because monthly payments are calculated based on the total cost of the lease. In the example above, the total cost of the 36-month lease was $12,000 plus interest and fees. This means monthly payments would be roughly $333 ($12,000/36=$333), plus interest and fees.

If you reduce the total cost of the lease to $7,000, this would bring the monthly payments down to approximately $194 plus interest and fees. In this example, trading in your vehicle would save you about $139 per month.

This example illustrates just how much you could potentially save by trading in your car for a lease. Because your trade-in reduces the cost of leasing, you may even be able to lease a higher-end car that you typically wouldn’t be able to afford. 

What Are the Drawbacks of Trading In My Car For A Lease?

Trading in your car does make leasing more affordable, but there is a drawback to this plan. If you trade in your vehicle for a lease, you won’t have any equity to put toward another car once your lease is over.

Consider the same example from above. If you apply the $5,000 from your trade-in to your lease, you will save money over the course of your 36-month lease. But what will you do when the lease is over? You don’t have any equity in the vehicle since it is leased. If you want to get a new car, you won’t be able to use the value of your leased vehicle as a down payment.

Keep this in mind if you are considering trading in your car for a lease.

What’s the Trade-In Value of My Car?

It’s important to understand how the trade-in value of your car is calculated before you head to the dealership. The dealer will take a number of factors into consideration when calculating your car’s trade-in value, including:

• Age: The older the vehicle, the less it will be worth. The value of an older car can also sharply decline if the manufacturer has changed the design of the model since yours was made. 
• Mileage: The fewer the miles on your car, the more it might be worth. Dealers assume that people drive between 10 to 12 thousand miles per year. If your vehicle is three years old, the dealer expects it to have between 30 to 36 thousand miles on it. If it has fewer than 30 thousand miles, this could increase its value.
• Condition: The condition of your vehicle will impact its value, too. If you’ve taken good care of your vehicle over the years, this could have a positive impact on its value.
• Mechanical condition: The dealer will also ask a mechanic to inspect your vehicle to evaluate its mechanical condition. If your vehicle is in need of serious repairs, this could lower its trade-in value. In fact, the dealer may deduct the estimated repair costs from the original trade-in value before making an offer. 
• Demand: Dealers only accept trade-in vehicles that they think they will be able to resell for a profit. Because of this, the dealer will consider how in demand your vehicle is with local customers when calculating its trade-in value. Keep in mind that demand can fluctuate throughout the year. If you are trying to trade in a convertible, for example, you may not want to do it in the winter, when demand for this type of vehicle is low due to the cold weather.
• Exterior color: Believe it or not, the paint color of your vehicle can impact its trade-in value. Dealers typically place a higher value on vehicles with neutral, classic colors that will appeal to a wider range of customers. If your vehicle has a custom paint job that only appeals to a specific group of customers, this could significantly reduce its trade-in value.
• Add-ons: If you paid more for optional add-on features when purchasing your vehicle, this could increase its trade-in value. However, if you customize your vehicle with huge wheels or aftermarket racing seats, this could negatively impact its trade-in value.

Before you bring your vehicle in, it’s best to use a free online tool to calculate its trade-in value. This way, you will know how to determine if the dealer is making a fair trade-in offer for your vehicle.