Lease equity: is your car worth more than your payoff?
Lease equity is the difference between what your leased car is worth today and what it costs to pay off the lease. If the car is worth more, that gap is money you can collect by selling or trading the car, and if you simply return it, you give it up.
Lease equity in one line
Worth more than the payoff? The gap is yours. Return the car and you give it up.
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Made-up round numbers. Returning this car would also cost a $400 disposition fee and $600 in damage charges, so selling ends $3,500 ahead.
Key takeaways
If the car is worth less, you have negative equity, and at the scheduled end of a standard closed-end lease you can usually return the car and leave that loss with the lender. Checking your lease equity takes one payoff quote and a few written offers, and it belongs at the start of every lease-end decision.
How to check your lease equity
Get your payoff. Ask the lender for a payoff quote for a specific date. At the scheduled end it is the purchase option price in your contract plus any fees; before the end it is the early payoff. Ask whether the figure differs when a dealer buys the car, and when the quote expires.
Get written offers in the same week. Ask a dealer of your brand, a dealer of another brand and an online buyer. Offers based on photos can change after an in-person appraisal, so treat the number as final only once the buyer has seen the car.
Net out the costs. Subtract anything you would pay to complete the sale. For a trade-in, judge the allowance together with the price of the car you are buying.
Do the subtraction. Best net offer minus payoff is your lease equity.
Example, with made-up round numbers: your payoff is $27,500 and the best written offer is $30,000, so you have $2,500 of positive equity. If returning the car would also cost a $400 disposition fee and $600 in damage charges, selling puts you $3,500 ahead of returning it.
Positive lease equity: how to collect it
Sell or trade to a dealer of your brand. A dealer of the same make can generally pay off a lease from that make's finance company. Get offers from two or three of them, because they compete for clean used cars.
Sell to another dealer or an online buyer. This works only if your lender lets outside buyers pay off the lease. Many carmakers' finance companies limit it; check which lenders allow third-party buyouts before you rely on an outside offer.
Buy the car yourself, then sell it. When your lender blocks outside buyers, you can do the lease buyout yourself and resell. In California, finishing the resale within ten days of receiving the title means you owe no sales tax on your buyout. You need the cash or a loan to cover the payoff in between, and a profit on the resale is a capital gain in the IRS's eyes, while a loss on a personal car is not deductible.
Take the equity as cash. If you trade toward a new lease, think twice before putting all of the equity toward the new lease as a down payment. Money paid up front on a lease is usually gone if the car is totaled or stolen early, so a smaller amount due at signing is often the safer choice.
Positive equity
Three ways to collect it. Your lender's rules decide who can buy.
Dealer of your brand
A dealer of the same make can generally pay off a lease from that make's finance company.
TipGet offers from two or three of them. They compete for clean used cars.
Another buyer
Another dealer or an online buyer. This works only if your lender lets outside buyers pay off the lease.
Watch forMany carmakers' finance companies limit it. Check before you rely on an offer.
Buy it, then sell it
When your lender blocks outside buyers, you can do the buyout yourself and resell.
Watch forYou need the cash or a loan to cover the payoff in between.
In California, finishing the resale within ten days of receiving the title means you owe no sales tax on your buyout.
Negative lease equity: what to do
At the scheduled end, you can usually walk away from it. In a closed-end lease, returning the car means paying only the disposition fee and any mileage and damage charges. The lender absorbs the drop in value.
Before the end, every exit costs roughly the gap. Selling, trading and formal early termination all settle the shortfall one way or another. A transfer or a pull-ahead offer may cost less; see getting out of a lease early.
Do not let it vanish into the next deal. Rolling a shortfall into a new lease raises the new payment for years. In a California lease contract, it has to appear as an outstanding prior credit or lease balance in the itemization of the capitalized cost, so look for that line.
Check again later. The payoff falls every month while the car's value falls too, and the two move at different speeds. A car that is underwater a year before maturity can have equity by the last few months.
Lease equity in California: trade-in or sale?
Trading in does not save sales tax in California. The state taxes the full selling price of the car you buy, and a trade-in allowance does not reduce it. That means a cash offer from one buyer and a trade-in offer from another compare dollar for dollar, so take whichever nets you more.
Two more California rules help when you sell or trade a leased car:
A dealer that takes your leased car in trade must pay off your lease within 21 calendar days, and it cannot resell the car until the payoff is sent. Get the payoff promise in writing and watch your lender account until it shows the lease closed.
If you terminate early by buying or trading the car, the lender's price on a personal lease is capped at payments already due, other unpaid amounts (not counting excess wear and mileage charges), a reasonable purchase option fee and the remaining lease balance.
What to ask
Lender: what is my payoff for this date, is it different for a dealer, who is allowed to buy the car, and when does the quote expire?
Buyer: is this offer in writing, how long is it good for, and will you pay my lender directly?
Dealer taking a trade: what date will you send the payoff, and will the contract show my equity or shortfall as its own line?
How 021 helps
When your next car comes through 021, we can take care of the current lease as well. Most often a dealer in our network takes it in trade and any equity can go toward the next car, and we can also handle the return, a buyout or a lease transfer.
If you are moving into another car, 021 Auto Leasing gets several dealers to quote the same car and gives you one written quote with the payment, drive-off, term, miles, taxes, fees and 021's fee before you agree to anything. Start with My lease is ending to see your options side by side.
Negative equity
Worth less than the payoff? Timing matters.
Earlybefore the end date
Every exit costs roughly the gap
- Selling, trading and early termination all settle the shortfall
- A transfer or a pull-ahead offer may cost less
- Do not let the shortfall vanish into the next deal
Latercheck again
The gap can change
- The payoff falls every month, and so does the car's value
- The two move at different speeds
- A car underwater a year before maturity can have equity by the last few months
The endscheduled end of the lease
You can usually walk away
- Return the car on a closed-end lease
- Pay only the disposition fee and any mileage and damage charges
- The lender absorbs the drop in value
Common questions
What is lease equity?
Can I sell my leased car?
Will CarMax or Carvana buy my leased car?
What happens to my equity if I just return the car?
Should I use lease equity as a down payment on my next lease?
021 Auto Leasing is a licensed California autobroker (license #82402). All new cars arranged for sale are subject to price and availability from the selling franchised new car dealer.