Advantages of Having a Trade-in When Leasing a Car

Using a trade-in toward a lease may prove beneficial when the trade is used as a down payment. Leasing only requires you to pay for about half of the car's value over the lease term, so using your trade as a down payment can have a significant impact on your monthly payment amount, or it can reduce or eliminate the down payment.

Lower Lease Payment

Leasing payments are based on vehicle depreciation, which results in paying for about 50 percent of the vehicle's value over the term of the lease. Because of this, any down payment or trade allowance greatly reduces your monthly payment amount, more so than a comparable loan deal. Expect to receive a discount of about $30 per month for every thousand dollars you put toward your lease. For example, a trade-in worth $4,000 can reduce your lease payment by $120 per month.

Less Down Payment

Most lease advertisements require a down payment to reach a specific monthly payment. You can avoid having to use your out-of-pocket cash by offering your trade instead. Lease advertisements often call for taxes, fees and an additional down payment, which can easily add up to thousands of dollars. Some leases require as much as $5,000 for a down payment. Rather than sell your vehicle on your own or tap into your savings to provide the down payment, you can use your vehicle as a trade instead.

Avoid Private-Sale Issues

Selling a vehicle privately is often time-consuming. Expect to advertise your vehicle, clean it and show it to potential buyers. Even if your vehicle has repair issues, you can trade it to a dealer without having to worry about the next owner or reducing the vehicle's sales price because of the car's running condition. If you owe money on your trade-in's current loan, the dealer must pay it off. You can transfer money to your current lease and avoid having to come up with the extra money to satisfy your loan if you owe more than the car's worth. If selling privately, you'd have to pay off the remainder of the loan balance if your sale price is not enough to cover the loan.

Warning

When leasing a vehicle, the leasing bank is the car's owner, not you. As a condition of leasing, you must maintain an insurance policy with your leasing bank listed as the policy's loss-payee. In the event that your vehicle is determined a loss, you won't receive any of your down payment or lease payments back. For this reason, consider offering a minimum down payment toward your lease. You stand to lose substantial money if your trade value pays off the total lease amount or a large portion of it.