A leased car is actually owned by the leasing company. To trade in a lease, the dealer for the new car must pay off the lease termination cost to the leasing company. The dealer will allow the wholesale value of the car as a trade credit and the cost to terminate the lease will be charged against that credit. The termination cost of a lease is usually significantly higher than the trade value of the leased vehicle. This puts the person trying to trade the leased car in a negative equity position.
The ability to get out of a leased vehicle into a new car is dependent on the amount of time remaining on the lease. The Leaseguide.com website notes that it is very difficult and expensive to get out of a lease early or in the middle of the lease term. The leased car is depreciating rapidly and the lease termination costs will be very high. Only in the last four to six months of a lease will it be possible to trade out without paying a lot of upfront cash.
Pay the Payments, Not the Lease
It is often less expensive for the dealer of the new car to make the remaining lease payments and turn the leased vehicle in to the leasing company. The balance of the payments for the lease can then be rolled into the financing or lease for the new car. The total of the remaining payments may be significantly less than the amount the leased car is upside down in relation to the lease termination cost. The person trading the lease will still be responsible for possible lease end charges such as excess mileage.
Same Brand Trade-In
If you trade your leased vehicle in for another car of the same brand, the leasing company may give you a break on the lease termination costs. This only works if the leasing company is the finance arm of the car manufacturer, for example, a Honda leased through Honda Financial Services. To facilitate the sale of new cars and provide a supply of good trade-ins to dealers, there are times when the captive leasing companies cut special deals for car owners who want to trade a leased car in early.