A rule of thumb in personal finance typically suggests leasing a car is a poor decision. Generally, leasing involves throwing money towards a car that you'll have to return in a few years - and critics claim consumers lease cars to be able to drive around in a more expensive car. But since the value of used cars has risen recently, consumers can now turn a profit when the lease is up.
According to the NADA Used Car Guide, used car sales peaked in June and are now starting to fall, but despite the minor drop, used car prices are still relatively high. That means there could be some money in trying to sell that car yourself instead of trading it back in when the lease is up.
Consider buying the car back from the leasing company and then selling it privately for a profit: Let’s say in order for you to buy back your leased car, the leasing company wants $15,000. However, you know you could sell the car for around $18,000 if you were to post an ad in the local newspaper.
Even better, if you know someone who’s interested in purchasing the car you are leasing, you can close the deal while still under lease, then have the buyer pay the leasing company the $15,000 and pay you the $3,000 ($18,000 – $15,000) directly as your profit. This way you get rid of the car and get your cash at the same time, in case you don’t have the ability to write a check to buy back the car in the hope of selling it later.
You may be wondering why the leasing company would be willing to sell you the car for $15,000 knowing that you can go out on your own and sell it for $18,000. The answer? The leasing company is not interested in owning cars.
Even if you didn’t buy back the car and simply returned it to the company, the leasing firm would most likely sell it anyway. For them, it's in many cases easier for a lessee to buy back the car so the leasing company doesn’t have to worry about selling it – even if it means the company sells the car for a lower price.
After you buy back your car upon completion of the lease, if you choose to sell the vehicle (again, hopefully for a profit), that is a huge undertaking. You have to find a qualified buyer and it will cost time and money to post an advertisement in the newspaper or online. Plus you have to deal with the uncertainty and legwork involved in making the sale.
If selling a car on your own doesn’t sound too appealing, there are businesses that specialize in these types of transactions. Michael Bor is the Founder and CEO of CarLotz, a for-sale-by-owner consignment service for used cars. Bor’s firm will essentially do all of the dirty work for you, as they shield you (the seller) from the buyer. You don’t have to get involved with negotiations and CarLotz will take care of all the administrative work (DMV paperwork, warranty, etc.), for a fee of course.
"The problem many consumers face in the private market is discomfort with the hassles and the potential danger associated with this type of transaction. That's where a business like CarLotz adds value. We enable consumers seeking a private market value to sell their vehicle without having to deal with the hassles traditionally associated with the private market. We're a consignment store for cars,” says Bor.
CarLotz takes a reasonable fee from the transaction that, depending on the car, can still leave a lot of profit on the table: $199 for the mechanic check, cleaning of the car and for taking photos to be posted on websites. If the car sells, they’ll take another $599. Ultimately, for $800, you don’t have to deal with the headaches of selling a car.
Determine the value of your car
To see what your car is valued at, visit KBB.com - compare this value with what the amount the leasing company wants for your leased car.
According to Bor, the type of car is not a big factor in whether or not you’ll be able to turn a profit, although he says fuel efficient vehicles do better due to high gas prices going on right now and large demand for hybrids and cars with good gas mileage. He says most people will have between $2,000 and $5,000 worth of value built up in their leases.
Additionally, if you’ve exceeded the mileage limit on your car lease, chances are good that you'll owe money to the leasing company – yet another reason to try and buy your leased car back from them and sell it for a profit to help pay the mileage fees.
-Scott Gamm is the founder of the personal finance website HelpSaveMyDollars.com. He has appeared on NBC’s TODAY, MSNBC, Fox Business Network, Fox News, ABC News and CBS. Follow Scott on Facebook and Twitter.
Besides the fine print of your lease agreement, there are plenty of ways to lose money on a car transaction. Be sure to check MainStreet's look at 7 Things Car Dealers Want You to Buy to make sure you're covered!