Cash Out Your Lease on Your Car

A contract is a contract, right? You sign on the dotted line and agree to certain terms. With a lease, you agree to pay x amount for, say, 36 months, and at the end of the lease term you can either buy the vehicle or turn it in.

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But there’s a third option listed in your contract, although it’s unlikely any dealer will mention it: You can sell your leased car yourself before the end of the lease.

A colleague at Kiplinger’s, Manny Schiffres, recently did this. He had five months left on his leased Lexus ES 350 when he decided he didn’t need the car anymore and wanted out of the contract. Rather than putting up with the hassle of selling the car to a private party, he sold it to CarMax, which handled the paperwork and paid off the leasing company. He saved about $3,000 on the remaining payments and insurance.

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You could walk away from your lease with a check in your hand if your vehicle is worth more than the purchase price written into the lease. Used-car values have shot up in the past few years. Plus, the residual value—what the car is assumed to be worth at the end of the lease term—is rarely spot-on.

Take the money and run. Some dealers are beating customers to the punch, contacting lessees to offer a sweet deal on a new leased vehicle. In leasing lingo, this is called a pull-ahead program. The offer may include waiving your last few payments and end-of-lease fees. The new monthly payments might even be lower than what you are paying now. It sounds great, but don’t take the bait—at least not yet. The fact that they are reaching out to lessees means they want your car and they are confident they can turn around and sell it for a profit, says Tarry Shebesta, president of LeaseCompare.com.

You may be able to pull the profit out of the car yourself, but you’ll need to know what your vehicle is worth. Look at a site that lists used-car values, such as Kelley Blue Book, NADA Guides or Edmunds.com, for the dealer retail price. Then call your leasing company and find out what your current payoff amount is, including the remaining payments, the cost to buy the car and the termination fee (a few hundred dollars).

When your payoff is less than what the car is worth, it makes sense to sell it. A dealer or CarMax can appraise the car, contact the leasing company for the payoff quote and write you a check for the difference. If you’d rather try your hand at boosting your profit by selling the car to an individual, LeaseCompare.com will handle the paperwork for $495 so the title transfers directly to the new owner and sales tax is paid only once. Otherwise, you’d pay tax to purchase the car from the leasing company, and the person who buys your car would pay tax to register the car (dealer-to-dealer transfers don’t incur sales tax).

If you wait until the end of the lease and turn the car in, be prepared to pay some fees. You’ll pay a disposition fee of $200 to $500 to cover the cost for the leasing company to clean up the car, prepare it for sale and handle the paperwork. If you’ve gone over the mileage allotment, you’ll pay about 20 cents per extra mile.

If the car has a few scratches, you prob­ably won’t be charged for excess wear and tear. But get anything more serious fixed before you turn the car in. It will likely be cheaper to pay for the fixes yourself than to be billed for the damage later.

Don’t dismiss the option of buying the car at the end of the lease and keeping it, even if comparable vehicles are selling for less than the lease’s purchase price. You’ll pay a purchase option fee of $200 to $500, but the peace of mind of knowing the car’s history may be worth the extra cost.

Ask Jessica a question at janderson@kiplinger.com, or follow her on Facebook.