For savvy motorists who have leased a vehicle they are now ready to return, record-breaking used car prices could represent a financial boon.
After plummeting to recession-era levels in the first few months of the pandemic, the auto market rebounded in early 2021. This left dealerships struggling to find products to sell, fueling the surge. prices all around. With few new cars on show grounds, motorists are snapping up any used cars they can find.
Josh Frankel, a New York-based financial consultant, found his leased 2018 Jeep Compass was worth $ 18,000 in the used car market, almost $ 3,000 more than the cash value of his lease . So rather than return the SUV, Frankel made a deal to sell it to a used car wholesaler.
“It couldn’t have been easier,” he told NBC News by phone. “I didn’t have to pay a dime. He came to my house, I handed him the keys and received a check.
“Lease buy-back prices were set three years ago, when dealers never expected used car prices to be so high. “
When calculating the price of a lease, finance companies estimate the residual value of the vehicle at the end of the lease, essentially guessing what it will be worth. This figure is used to calculate the monthly payments. But it is also used to set a buy-back price that a customer can pay at the end of the lease to keep that vehicle.
The people who determine the tailings are normally pretty good at it, said Michelle Krebs, senior automotive analyst at Cox Automotive. But they weren’t counting on a combination of Covid-19 and an overwhelming shortage of semiconductor chips.
“Lease buy-back prices were set three years ago when they never expected used car prices to be so high,” Krebs said.
As a result, many leasing customers buy back their leases and immediately resell the vehicles. And, like Frankel, pocket the difference.
“Used car prices have gone crazy,” said Wes Grueninger, a Seattle mobile tech developer who leased a 2019 Honda Ridgeline.
In June, he went online and found Carvana offering $ 36,400 for the truck, a convenient premium over the cash value of $ 29,000. It was a deal he couldn’t refuse.
“I wouldn’t have believed it if it hadn’t happened to me,” said Grueninger, who won almost $ 8,000. “Who would pay so much? “
While such offers can be tempting, Krebs warns that a lease buyout doesn’t always work so well. “Lease laws vary widely, state by state,” she said, stressing that “people have to do their homework as to what the laws are.”
This was advice that Atlanta’s Nicola and Joe Pariseau could have used before deciding to buy out the lease on their Volkswagen Tiguan and then sell it back. At first glance, it seemed like a good move, but they hadn’t calculated into the equation the $ 1,800 in taxes they had to pay to the state before transferring title.
“We thought we were golden. But in the end, we lost a few hundred dollars, ”said Joe Pariseau.
“It ended up being a fiasco,” Nicola added.
There are other reasons to think twice before buying a rental vehicle and then reselling it. The big question is: what next? If you already have another car, you could be in great shape. But if you have to turn around and buy another vehicle, your profits could be fleeting.
Debbie Mazza was “counting the days” until she could end her lease on the 2018 Toyota Camry, especially when she “found out that my car was $ 5,000 more than my lease said.” it was worth ”.
But before completing the buyout, Mazza realized that it would have to replace the Camry with something else. When she started checking with dealers, she found that everything she wanted was either sold out or much more expensive than expected.
So Mazza has decided to wait, at least for now, until she finds what she wants, even though she isn’t making a profit on the Camry.
Consumers of a car, truck or crossover whose lease is about to end should keep several things in mind:
- Find the residual value of your lease and check what the rules are for a buyout. They may vary from manufacturer to manufacturer, and from lender to lender
- The residual may not be the same as the buyout price, especially if you are looking to terminate the lease early.
- Research the current market value of the vehicle using online pricing guides, like Edmunds or the Kelley Blue Book, or used car services with online pricing guides, such as Carvana, Shift, or Vroom.
- Check state and local regulations to buy a lease and then resell the vehicle. In some states, you may be required to pay sales tax or high fees.
- Once you know what your car will be used for, subtract what it will cost to buy it, plus any taxes or fees, and get a final figure.
- Take into account the potential paperwork and other hassle – while remembering that buying or leasing a replacement vehicle could be more expensive and more difficult at this time.