Rolling equity into new lease

I have a question about rolling equity in expiring lease into a new lease. Normally people suggest not putting a down payment on a lease because of the car is wrecked or stollen you will not be able to recover that cash down payment (not sure if that’s correct and if so why that is). If it is correct then what about when you have equity in an expiring lease and the dealer offers you money to buy that expiring car out and they offer to put it towards a new lease that you are negotiating. Does that work the same way as if you just made your own cash down payment and therefore you could lose it if the new car is lost or stolen? If that’s how that works any other suggestions on how to best work things with equity in expiring lease?

If the amount in less than you would typically pay for inceptions, I wouldn’t worry about it. If it is more than that, have them cut you a check.

1 Like

You’re asking a nuanced question. Beware of blanket answers.

All of the money is never at risk, because for every $1 you pay upfront you recoup a portion every month in the form of lower rent charges/lower payment.

So on a 36 month lease, if you total the car in month 34, you would have recouped 34/36=94% of the money you paid upfront and you’ve made 34 smaller payments compared to putting nothing upfront.

Plus most leases come with GAP and you have car insurance.

Do the math with and without the money upfront, do an honest risk assessment, and then determine what to do based on your risk tolerance.

1 Like

Keep in mind that the dealer that gives you the most for your current vehicle is unlikely to also be the dealer that will give you the best deal on a new vehicle. It’s heavily recommended around here to keep the two transactions separate. In which case you get a check for your equity & then determine how much of that you’d like to put towards your new lease.

4 Likes

I think the general consensus here is to separate the transaction. For example, get a quote from Carvana or Carmax, or other major buyer and get the excess cash from the expiring lease (assuming the lease can be sold to a “third party”). With that cash, you can decide whether you want to put anything down on the next lease. The general consensus here is to not put anything down on any lease, so you would just pocket the money.

I just leased a car last month and didn’t follow what is above. I traded my Toyota lease for a Volkswagen. Volkswagen was able to match my Carvana price, so in essence I put down about $6,500 towards my Volkswagen lease, thru the equity I had in the Toyota. For me, the opportunity cost and tax benefit of just using the equity as a down payment, outweighed the risk of “losing the down payment” if the car was totaled.

This is a decision that is highly dependent on what you feel / want to do. If you are looking for the typical answer that most of the experts on this site have, don’t do what I did.

3 Likes

I feel like it truly depends on the captive if the money upfront is lost or not. We’ve seen posts here going both ways, captives keeping equity and others not giving it back to the lessee. Equity is one thing but what about down payments? Also, it’s probably not a big deal if a car gets totaled in the last few months of the lease, but what about the first 6 months if one were to put 5 or even 10k down?

Personally, I don’t think it’s worth the headache or the unknown to put a bunch of money down, but each persons risk tolerance is different.

2 Likes

I think it depends on the vehicle too. For example, I played with the numbers on an Audi q7 which has a MF of 5% and used my 9% tax rate on monthly payments.

With 3k Das, the total lease cost is $30,800

With 10k Das, the total lease cost is $30,300

For that particular vehicle, it’s not worth putting down an extra 7k to save 500 over the lease in my opinion, especially if there’s a chance that money can’t be recouped if a loss occurs. Anyone contemplating should run the numbers both ways and make an educated decision.

2 Likes

Take the equity as a check and deposit it.

1 Like