Do You Have Equity In Your Leased Vehicle? Car Pro Commentary

moneyI keep seeing something that I thought I would never see…people coming out of leases with equity, and I do not mean just a few dollars, but thousands of dollars. I saw a case of a listener coming out of a 36-month lease a couple of weeks ago on a 2010 Cadillac Escalade that had a true value of $9000 more than the residual value. I had helped her with a lease on a new Infiniti JX and it dawned on me to ask “what are you doing with the Escalade?” She replied, I’ve called GM to arrange to turn it in” she said. WHOA! STOP! ALTO! Sure enough, she had a residual value of $31,000 and a local dealer offered $40,000 for it. She almost walked away from $9000.
This lady is an educated lease purchaser, owns her own company, but like many people who have leased over and over-they just got used to turning their leased-vehicles in without even checking the value. For decades, everybody in the industry knew there was no need; the value was ALWAYS less than the residual value with rare exception, but all that has changed now and I predict equity in leases will be even more pronounced in the future.
Two factors have contributed to this new phenomenon of lease-end equity. First, vehicles coming off lease today had realistic residual values when the lease was started. For years, many manufacturers inflated residual values to make payments lower, but that came back to bite them and they stopped this practice. Secondly, the sky-high used car values I have been telling you about are aiding in helping people pocket cash at the end of their leases.
Looking to the future, I see this used car shortage and high values to continue for at least another year. Lower new vehicle sales over the past few years has meant fewer trade-ins in available. This created a shortage of used cars and makes values remain at peaks. I see nothing that will stop this trend except another 15% or so increase in new car sales in 2013. Should the economy not improve, that will create even more demand for used vehicles, which will contribute to even higher used vehicle prices.
One thing is for sure, lease companies today want you to turn in your vehicle at the end of your lease. There is nothing they would love more than to take it to auction and pocket your equity. This is a reversal of epic proportion. A few years or ago, they were enticing you to purchase your lease car with low interest rates and other offers. At that time, they did not want your lease car back, knowing they had a deep loss coming.
In addition to looking closely at your current lease if you are in one, bear in mind that if there is equity, that money is yours. You can even take it in cash to help with some other bills you might have, or use it toward your next lease or purchase.
If my predictions are correct, people leasing today will have a nice chunk of equity at the end of their new lease, and also enjoy a lower monthly payment while they build that equity. Plus you only pay for the best part of the vehicle, its first three years. With the exception of people who drive more than 15000 miles per year, I think smart money today is on leasing.

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