Yes, You Can Sell a Leased Car

Can you sell a leased car? The answer is yes — and it's a good time to do so.

Dealers facing tight inventories are scrambling to buy good used cars to resell. They might be willing to purchase your leased car for more than the buyout price in your contract.

“I haven’t seen used car prices go up this much in years,” says Oren Weintraub, president of car concierge service Authority Auto. “We are seeing a large percentage or leases with equity in them.”

With the pandemic reshaping the car business, experts recommend extracting that equity by selling the car outright, using it to offset the cost of returning the car or leveraging that value to make a better deal on your next car.

Compare lease buyout options

Where does the equity come from?

Your lease payment is based on the residual value of your vehicle. This is a prediction of the car’s value at the end of the lease which, because of the pandemic, is now often too low.

This means you might be able to arrange to sell the car for the higher price, pay off the lease and then pocket the difference. It also means you could dodge over-mileage penalties or end the lease early.

For example, Scot Hall of the lease-trading site Swapalease said his wife has been working from home during the pandemic and decided she didn’t need her leased 2017 GMC Yukon Denali XL. She ended her lease six months early — saving the remaining monthly payments — and sold her SUV to a local dealer, pocketing a check for $2,500.

Know where you stand

Here’s how to know if you have equity in your leased car:

Find the residual value in your lease contract. This is the amount you can buy the car for at the end of the lease (there might also be a disposition fee for this transaction).

Get today’s buyout price. If you want to end your lease early, call the lease holder and ask for a current buyout price. Hall says you can usually estimate this price by simply adding the total of all the remaining payments to the residual value.

Look up the current market value. Use an online pricing guide, such as Edmunds.com, to find the trade-in value of your car, factoring in the current mileage, options and condition. If you’re thinking of selling your car to a neighbor, look for the private party price. Or you can get a nearly instant cash offer from a local dealer, Carmax or an online car retailer such as Carvana or Shift. Give real-world offers more weight in your calculations.

Do the math. Subtract the residual value from the current market price or cash offer. This is an estimate of how much equity you have in the car and how much money you could make on the deal.

Find opportunity in a volatile market

Once you know if you are in a positive equity position, you can explore different ways to use this potential value. Here are options to consider:

• Buy the car yourself. If you do this, you’re essentially getting a good used car at below-market price. Also, you know the history of your car, so there are no surprises. You'll need to arrange a lease buyout loan.

• Sell your leased car privately. In many states, you can buy the car and transfer it to a new owner within a certain number of days without paying sales tax yourself. Be sure to check with the DMV in your state before you make a deal.

• Trade in the car to a dealer. If you decide you want another car, you could sell your leased car outright first and then plunk down the cash on the new ride. But trading it in could save you a considerable amount of sales tax.

• Sell your vehicle to an online service or a local dealer. Carvana and Shift will pick up the vehicle and do all the paperwork. However, Carvana says it will not accept leased cars as trade-ins.

Those restrictions on third-party buyouts

Legally, a lease is a contract between you and the lender, and only you are entitled to buy the car at the stated buyout price.

In the past, lenders have allowed third parties to buy out the lease at the contracted price. For example, if you traded your leased car on a model from another manufacturer, the dealer would buy out the lease as a part of the sale.

But many lenders in today's market — mostly the financial services arms that arrange leases for manufacturers — now either prohibit this practice by forbidding all third-party sales, or by charging the third-party buyer a much higher price to purchase the car than shown in the contract.

If that is a roadblock you encounter, you can still sell your leased car or trade it in at another dealership, but you must purchase the vehicle first. That will mean less profit and extra effort, so weigh those into your decision. Here's how:

• Arrange a lease buyout loan from lender.

• Pay your state's sales tax on the buyout price.

• Register and title the car in your name.

At that point you can keep the car, trade it in or sell it.

Return your lease without penalties

Knowing there is equity in your car puts you in a stronger position when you return your leased vehicle.

For example, Weintraub had a client who was ready to return a leased car with excess mileage and minor body damage. Because of the equity in the vehicle, Weintraub convinced the dealer to waive the $350 disposition fee, the excess mileage penalty and wear and tear charges.