When it’s over, as Mark McGrath of Sugar Ray said, that’s when you’ll fall in love again. This is how the automakers, ever so gently in those final months of your lease, want you to feel when their dealers take your car back and shove you into that hot new thing. Like most big life decisions, it’s best to plan ahead and explore all of your options before your lease expires. But now this is not always the case. Since the pandemic disrupted the auto supply chain, some lease terms have changed in favor of car dealers and turning against consumers. Here’s what you should know.
Some automakers don’t want you to trade in your lease to another brand
Car leases stuff more clauses into the contract which can make it difficult for you to trade the lease or sell it to another dealer. The current shortage of new cars has turned used cars—particularly non-leased cars under three years old, which are the most in demand of all—returning huge profits to auto dealers who can’t order enough new stock. Most non-rental cars become pre-owned cars (CPOs), which often means that the dealer will make money selling the same car twice. This is business as usual.
The growing problem is that if you decide to exchange your rental car for another brand dealer or any other unlicensed used car dealer. In years past, you had the freedom to go anywhere you wanted. Equity in your rental car makes it attractive to purchasers who want to make money reselling the car. Now, according to Car Newsat least five automakers prohibit renters from selling the vehicle 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 automakers are said to change these lease terms for customers who are still on their existing leases. Since there is a huge demand for used cars and resale values have increased in double digits versus just a few years ago, automakers want their dealers and dealers only to resell the cars. They enforce this policy through their financial banks, which own your rental car and can refuse to accept rewards from any merchant outside their franchise network. This means that if you are renting a new Cadillac, you will return to your GM dealer, not your BMW or CarMax dealer. This was not in place before. Naturally, there is a lawsuit pending in California against Mercedes and BMW for this particular issue.
Inspection, disposal and repairs
No matter where your rental car ends up, you’re not done paying. All automakers’ leases charge a disposal fee upon termination, usually around $400. It’s like the acquisition fee you paid at the beginning of the lease, except it’s going to come back to receive a goodbye kiss you can’t refuse. Hopefully you didn’t do anything illegal during the lease, because you will be liable for any unpaid violations (parking, traffic fees, property taxes) associated with your state registration.
When returning your vehicle to the same branded dealership, you will usually have to schedule a no-cost vehicle inspection before returning the vehicle. This is where the automaker can knock you down for your blows and any improper modifications or maintenance you promised you wouldn’t do during your lease. Most automakers allow for a fair amount of wear, so some creases on the wheels, some light stains on the carpet, some paint scratches, and maybe a strange smell or two wouldn’t matter if they were easy to fix. But for anything obvious and worrisome, you’ll either pay to have it fixed before you return the car or you’ll get a separate bill in the mail weeks later.
Option A: Buy your lease
If you don’t want to rent or buy another new car right away and can afford the expenses, consider buying a lease. This is an especially useful strategy if you enter your lease before the 2020 pandemic begins. That’s because the lease residual value — the value the automaker expected your car to be worth when the lease expires — is fixed in the contract.
With used car values rising in 2021 and continuing to rise in 2022, a lot of the leases that originated in 2019 and 2020 have residuals that may be undervalued in the current market. That is why some automakers ban purchases from unbranded dealers. But anyone can still benefit from the equity of a rental car, especially if that car is in high demand with less than average mileage. You will owe sales tax and some DMV fees. Calculate the upside in profit, and it might be worth it. After all, wouldn’t you want to profit from a sale instead of giving that profit to a car dealer?
Option B: Swap the lease
This is the most cumbersome way to end a lease, but if it works, you’ll be leaving your car months or even years ahead of schedule. Third party companies participate in lease transfers, where they will pay your lease and assume your contract. This is not possible for every lease. Some leases only allow lease transfers when the original tenant (you) remains on the lease, so you retain liability even if someone else has the car. Others do not even allow rent transfers. We have detailed this practice. In general, it’s not a great idea unless you can’t make the payments or if the fees for early termination of the lease outweigh the risks involved in moving the lease.
Option C: Keep the lease
This is the easiest option. Dealers love repeat customers who keep paying toys, and in the desire for more used cars, dealers are more motivated to offer their renters an early exit without penalty. If the dealer knows that you have a desirable car that they can sell and you want to continue the lease, it is best to buy a brand new car as soon as possible, and most likely for the same price or better. This situation also explains why more automakers (particularly Kia and Ford) are offering 24-month leases instead of the usual 36 months.
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