Now May Be The Time To Get Out of Your Car Lease
Car Dealers are on A Used Car Shopping Spree
A combination of factors has conspired to make this an ideal time to get out of your car lease, and maybe pocket some money in the process.
Because of production slowdowns connected to the ongoing Covid-19 pandemic, and a global shortage of silicon chips needed to control vehicle functionality in today’s high-tech cars, brand new vehicles are in lower-than-average supply. Yet demand for new cars has not decreased at a similar rate. This has created an interesting bump, driving up prices for the next best thing to a new car: a low-mileage used car. This led the larger national retail pre-owned car dealers to go on something of a buying spree.
“Carvana and CarMax were offering top dollar for trade-ins on late model vehicles, even if they were leased vehicles whose leases hadn’t matured,” says Ed Kim, vice president of industry analysis for California research firm Auto Pacific, referring to vehicles that are still under some portion of their standard three-year lease contract.
Because of elevated demand for these vehicles, the purchase prices offered by these dealers could approach, meet, or even exceed what is known as the “payoff” for a leased vehicle—the amount that a leasee owes in total for the remaining monthly payments on their vehicle.
If this amount exceeds the “payoff,” the leasee gets to pocket the overage. But even if the amount offered is less than the “payoff,” the leasee may choose to accept it if they simply want to get out of the lease on a vehicle they no longer love or need, or are interested in leasing something newer, more efficient, less costly, or otherwise more compelling. This can be especially beneficial if their financial circumstance has changed and they can no longer afford the car they’d leased.
“We’re going to continue to see very strong used car values for a while going forward.””
“This is a global issue affecting production all around the world,” says Kim. “So I think we’re going to continue to see very strong used car values for a while going forward.”
Kim is not just an armchair analyst and observer of this trend. He has used it successfully, twice, to get out of contracts on the daily drivers he and his wife were leasing. In the first instance, he sold his 2018 Volkswagen Golf Alltrack wagon to the local VW dealership. “Since we were both working from home, we no longer needed a second car, so we were fully prepared to take up to a $1000 hit to get out of the last year or more of our lease,” Kim says. “But the VW dealer said flat out, we’ll offer you your payoff.”
Months later, with the spike in pricing escalating, he sold his wife’s 2019 Volkswagen Jetta to Carvana, and made a profit. “They gave us $19,500 for the car, and our lease payoff at the time was $19,000.”
Kim and his wife consolidated their vehicular needs, and leased one new Subaru. “So, we got down to one car payment, equal to one of our two previous payments,” he says. “And, we got a brand new car out of it.”
EDITOR’S NOTE: Check out the Le Car Guide for the steps you might want to take on “How To Get Out of Your Lease.”