Leasing a car instead of buying provides the benefits of a lower monthly car payment and the ability to turn in the keys and walk away at the end of the lease term. The opposite side of those benefits are the greater difficulties you face when you want to get out of a lease before the termination date. You can trade a leased vehicle in early. You just need to understand the possible consequences.
TL;DR (Too Long; Didn't Read)
It is possible to trade in your leased car to purchase a new car at another dealership, but be aware that there will be penalties and fees associated with this type of transaction.
Trading a Leased Versus Financed Car
Leasing a car is just another form of financing to get a new vehicle. With a lease you are financing the use of the vehicle compared to financing the purchase when you buy with a car loan. Your lease contract will have a payoff value, which is the current cost to terminate the lease. When you trade in your leased car, the dealer -- any dealer -- will pay off the lease and the cost of the payoff goes against the trade-in value of your leased vehicle. When you compare the lease to a financed purchase of the car, the lease will have a higher payoff amount at any point in the lease than what a loan payoff would have been at the same point in time.
Lease Payoff Amount
You can obtain the current lease payoff amount by calling the leasing company listed on your lease contract. Or to get a quick idea of the payoff amount, add the lease residual value plus the total of payments yet to be paid minus the sales tax included in the monthly payments. One other option you can use to get out of a car lease early is to pay all the remaining payments in a lump sum and turn in the car to the leasing company. This may be the lower cost option if the trade-in value of the car is much less than the total payoff amount of the lease.
Working With The Dealer
At the dealership, the used car department will evaluate your leased car and assign a trade-in value. If the trade value is greater than the lease payoff amount, you have positive equity that can be applied to the purchase or lease of a new car. If the payoff amount is greater than the trade value, you have negative equity -- you are "upside down." You might need to write a check for the negative equity or roll some or all of the upside-down amount into the new vehicle financing. Any dealership will apply these values in the same manner. The main difference between dealers would be the trade value the dealer puts on your current leased car.
In many cases, attempting to trade out of a lease early is an expensive proposition. The payoff value of a lease contract will stay high relative to the trade value of the car until there are only a few payments left. Be prepared to put a significant amount of cash into the deal to trade your leased car early. One situation where it may be cost-effective to trade a lease early is if you have exceeded your lease mileage allowance and the excess mileage charge will grow to a large value if you keep the car until the end of the lease. In this case it may be a choice of pay some money now to trade out of the lease or pay a lot more later at the end of the lease.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.