Do you have car lease equity, and how much is it worth?

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What is lease equity, and do you have any?

Lease equity is the gap between what your leased car would sell for and the payoff your leasing company quotes to sell it to you. If buyers would pay more than the payoff, that difference is positive equity, and you can keep it by buying the car. To know whether you have equity in your lease, you need two numbers in writing: the payoff quote and at least two real offers on the car.

What follows is an illustration. Jude is a made-up driver, the notepad is imaginary, and every figure was invented to make the lease equity math visible.

What were the first three questions on Jude’s notepad?

Jude’s Mazda CX-5 lease in Queens had two months left. A friend had mentioned “lease equity” over dinner, and Jude realized he had no idea whether he had any. So he did what he always did when something felt fuzzy: he listed the questions down a yellow legal pad and promised himself he would not stop until each one had a number beside it.

1. “What is lease equity, in plain words?” He settled on this: what the car would sell for, minus what it costs me to buy it from the leasing company. Everything else on the list was a way of pinning down those two figures.

2. “Is the payoff just the residual on my contract?” Close, but not quite. His contract showed a residual of $23,500. He asked the lessor for a dated payoff in writing, and it came back at $23,900, because his contract added a purchase option fee. The payoff was the number to use. The residual was just where it started.

3. “What is the CX-5 really worth?” An online estimate said $28,500, which made him smile. Then he got two written offers from used-car buyers: $26,800 and $27,400. He crossed out the estimate. An estimate is somebody’s opinion; an offer is money on the table.

How much equity did Jude have in his leased car, and what does tax do to it?

4. “So how much equity do I have?” He wrote it as a range, not a single number.

5. “Does sales tax eat the equity?” It depends on what he planned to do. In New York City, sales tax is 8.875% all in: the 4% state rate plus the city’s 4.875%. On a $23,900 purchase that is $2,121. New York does not credit the tax he paid on his monthly lease payments against the buyout, since the state views the buyout as its own purchase. The NY DMV also charges a $50 title fee, plates and registration on top.

If he bought the car to keep, the tax was part of what owning it cost, the same as with any car he might buy next. If he bought it only to sell, the tax would come straight out of his equity, leaving roughly $1,400 at the high offer before title fees. That one line changed how he read the whole notepad.

Does Jude’s equity help when he applies for credit, and what should he do with it?

6. “Does equity help if I apply for a loan?” A loan smaller than the car’s value is better secured, and lenders consider that alongside credit and income. It is one factor, not a promise. He would be borrowing $23,900 against a car worth around $27,000.

7. “What do I actually do with it?” He listed the options. Return the car, and the equity stays with the leasing company. Trade it at a dealer, if the leasing company allows that payoff, and accept whatever credit the dealer’s appraisal gives. Or buy it and keep driving a car he knew, worth more than he was paying.

He circled the last one. He liked the CX-5, his commute was short, and replacing it meant paying today’s used prices plus tax on a car with a history he did not know. He applied to finance the payoff and paid the tax from savings. For more on the choices he weighed, see keeping a leased car that has positive equity.

How do you check whether you have equity in your own leased car?

• Write down your payoff from the leasing company, in writing, with its good-through date. Do not substitute the residual.
• Get at least two written offers and record the range.
• Subtract, and keep the range. If the answer is negative, returning the car may be the better exit, and the lease-end decision tool can compare the paths.
• Price in the sales tax your state charges when you buy, then settle on keeping the car or selling it. New York drivers can see how buyouts work in New York.
• Ask your leasing company what it allows if you are considering a trade or a sale to someone else. Mazda drivers can start with the Mazda lease buyout page.

If your equity is positive and you want to keep it, lease buyout financing lets you hold on to the car and its value through one private application, with approval subject to lender underwriting.

What else do people ask about leasing equity?

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