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When it’s over, as Sugar Ray’s Mark McGrath said, that’s the time you’ll fall in love again. That’s how automakers want you, ever so sweetly on those last months of your lease, to feel when their dealers take back your car and push you into that hot new thing. Like most big life decisions, you’re better off planning ahead and exploring all your options before your lease ends. But now that’s not always the case. Since the pandemic disrupted the automotive supply chain, some leasing terms have changed to favor car dealers and turn against consumers. Here’s what you should know.
Some Automakers Don’t Want You Trading In Your Lease to Another Brand
Car leases are stuffing more clauses into the contract that may make it much harder for you to trade in your lease or sell it to another dealer. The current new-car supply shortage has turned used cars—especially off-lease cars that are barely three years old, which are the most coveted of all—into a raging profit grab for car dealers who can’t order enough new inventory. Most off-lease cars become Certified Pre-Owned (CPO) cars, which often means a dealer will make money selling the same car twice. That’s business as usual.
The growing problem is if you decide to trade-in your leased car to another brand’s dealership or any non-franchised used car dealer. In years past, you’d have the freedom to go wherever you want. The equity in your leased car makes it attractive to purchasing dealers who want to make money reselling the car. Now, according to Automotive News, at least five automakers are banning lessees from selling the car to any dealer outside their brand.
This includes Acura, Honda, Chevrolet, Buick, GMC, Cadillac, BMW, Mercedes-Benz, Nissan, and Infiniti. This list may not be exhaustive, and the automakers are reportedly changing these lease terms for customers who are still in their current leases. Since used cars are in hot demand and resale values have increased by double digits versus a few years ago, automakers want their dealers and only their dealers reselling the cars. They’re enforcing this policy through their finance banks, which own your leased car and can refuse to accept payoffs from any dealer outside their franchised network. That means if you’re leasing a new Cadillac, it’s going back to a General Motors dealer, not a BMW dealer or a CarMax. This was never in place before. Naturally, there’s a lawsuit pending in California against Mercedes and BMW for this very issue.
Inspection, Disposition, and Repairs
Regardless of where your leased vehicle ends up, you’re not done paying. All automaker leases charge a disposition fee upon termination, usually around $400. It’s like the acquisition fee you paid at the lease start, only it’s back to give you a goodbye kiss that you can’t refuse. Hopefully, you didn’t do anything too illegal during your lease, since you’ll be liable for any unpaid violations (parking, tolls, property taxes) associated with your state registration.
When returning your car to the same branded dealership, you’ll usually have to schedule a no-charge vehicle inspection before returning the car. This is where an automaker can ding you for your dings and any modifications or improper maintenance you promised you wouldn’t do during the lease. Most automakers allow a reasonable amount of wear and tear, so some scuffs on the wheels, a few light stains on the carpet, some paint scratches, and maybe a weird smell or two won’t matter if they’re easy to resolve. But for anything obvious and unsettling, you’ll either be paying to fix them before you return the car or you’ll get a separate bill in the mail weeks later.
Choice A: Buy Out Your Lease
If you don’t want to lease or buy another new car right away and can afford the outlay, consider buying out your lease. This is an especially advantageous strategy if you entered your lease before the 2020 pandemic began. That’s because your lease’s residual—the value the automaker predicted your car would be worth when the lease ends—is fixed in the contract.
With used car values skyrocketing in 2021 and staying high in 2022, plenty of leases originating in 2019 and 2020 have residuals that may be significantly undervalued in the current market. That’s why some automakers have prohibited buyouts from non-branded dealers. But anyone can still take advantage of a leased car’s equity, especially if that car is in high demand with below-average mileage. You’ll owe sales tax and some DMV fees. Calculate the upside in profit, and it might be worth the trouble. After all, wouldn’t you want to profit on a sale instead of giving that profit to a car dealer?
Choice B: Swap Your Lease
This is the most complex way to end a lease, but if successful, you’ll have quit your car months or even years ahead of schedule. Third-party companies engage in lease transfers, in which they’ll pay off your lease and assume your contract. That’s not possible for every lease. Some lease contracts only permit lease transfers when the original lessee (you) remains on the lease, so you retain liability even if someone else has the car. Others don’t even permit lease transfers. We’ve detailed this practice. Generally, it’s not a great idea unless you can’t afford to make payments or your lease’s early termination fee outweighs the risks involved in a lease transfer.
Choice C: Keep Leasing
This is the easiest option. Dealers love repeat customers who keep pushing play, and in the hunger for more used cars, dealers are more eager to offer their lessees an earlier exit without penalty. If a dealer knows you have a desirable car they can sell and you’d like to keep leasing, you’re likelier to get into a brand-new car sooner than later, and likely for the same price or better. This attitude also explains why more automakers (especially Kia and Ford) are offering 24-month leases instead of the typical 36 months.
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