If you’ve decided to take the plunge on leasing, one question you might have, particularly if it’s your first time,
is whether you can trade in the old car you own. The answer is yes; it’s common for
dealers to accept a trade-in on a new-car lease. A lot of the details and terms for leasing, and the terminology used, might seem confusing if you’re used to buying — and Cars.com can help.
We’ve added links below to coverage that will help you sort through the leasing process.
A couple things will be the same as buying. First, you still need to negotiate your best price on the new car
(the lease calculation will start with the price, the “capitalized cost” in lease parlance, for the new car). Also, you can trade in your old vehicle to use as a “down payment,” applying what you get to the lease costs for the new vehicle.
However, keep in mind that when you trade in your car on a lease, you actually are doing two separate transactions,
said Greg McBride, chief financial analyst for personal finance site Bankrate. The dealer is leasing you a car owned by the leasing company (often the automaker’s finance unit) and the dealer is buying your car.
“The price you get trading is independent of the lease,” McBride said. Both transactions are negotiable, and you need to keep them separate in your mind so you get the best deal on each.
Is there a downside to doing a trade-in rather than selling the old car yourself? You might get a few dollars more by selling it yourself to a private party or to a used-car company such as CarMax, but it has to be worth the trouble to you, according to McBride. “The odds are in your favor to get your best price in that fashion, but … most people are looking at the convenience — drive in in your old car, drive out in a new one — not about trying to squeeze out every possible dollar.”
You can get an idea of fair value for your old car with Automotiveng car pricing guide here.
If you still owe money on your old car, you probably still can trade it on a lease — if it’s worth more than you owe. But as with buying, “it’s better to trade in a vehicle you own outright than one you owe money on,” McBride said. “You have less equity, so the value of your down payment is going to be much smaller.” And you might even have to come up with out-of-pocket cash as well to cover the upfront costs of the lease.
If you owe more than your old car is worth, you don’t really have a trade-in. Some dealers will work with you to take your car and roll what you owe into a new-car loan. But you’re probably out of luck on a lease if you have negative equity, McBride said. Circumstances differ and there are many reasons people find it advantageous, or just desirable, to lease; you can find a broader discussion of that here.
But at the end of the lease, you’ll give the car back and sign another lease, or buy without a trade-in to help. “It puts you on a treadmill of payments and that’s hard to get off of,” said McBride. He suggested that if the main reason you’re looking at leasing is to get a lower monthly payment, you might consider trading in that old car for a lower-price, nearly new used car. Someone else will have paid for the big depreciation of the first two or three years — maybe a person who leased it.
“You get the same payment and at the end you own a car,” said.