Are you thinking about switching from a financed car to a leased one? It’s a question that many car owners face, and the answer is yes, you can make that switch. Let’s break down how this works in simple terms.
Understanding Your Current Situation
Firstly, it’s important to know where you stand with your financed car. When you finance a car, you’re making payments towards owning it eventually. However, if you’re looking to switch to leasing, you might still owe money on your current car loan. This amount is what we call your payoff amount.
Trading In Your Financed Car
When you decide to trade in your financed car for a lease, the dealership will evaluate your car’s current worth, known as its trade-in value. If your car’s trade-in value is higher than the remaining balance of your loan (payoff amount), you’re in a good spot. The extra money can often be used towards the lease of your new car. This is called having equity in your car.
However, if your car’s trade-in value is less than what you still owe on the loan, this is known as being “upside-down” on your loan. In this case, you don’t have equity—you have negative equity.
Handling Negative Equity
If you have negative equity, you still have options, but they can be a bit tricky. Here are two common ways to deal with it:
- Roll Over the Balance: Some dealerships might offer to roll over your negative equity into your new lease agreement. This means they’ll add what you owe after the trade-in to the lease of your new car. While this lets you transition to a leased vehicle, it also means higher monthly payments because you’re covering the cost of two cars — your old balance and the new lease.
- Pay Off the Difference: Another option is to pay the difference between the trade-in value and your loan balance upfront. This is more straightforward financially because your lease payments will only reflect the new car’s costs.
Why Consider Leasing?
Leasing can be attractive for several reasons. It usually comes with lower monthly payments compared to financing a purchase, you can enjoy a new car every few years, and you don’t have to worry about selling the car later. However, leases come with mileage limits and you need to keep the car in good condition to avoid extra charges.
Final Thoughts
Trading in a financed car for a lease is definitely possible and can be a smart choice depending on your circumstances. Consider your car’s equity, evaluate your financial situation, and think about what you need in a car and how you use it. If in doubt, speaking to a financial advisor or a trusted dealership can help clear up options and set you on the right path to your new lease.
So, if you’re looking to make a change, assess your situation and consider if leasing might be the right next step for your automotive needs.
