Lease allowance is the number of miles you can drive a leased car without having to pay extra fees. If you drive more than that, you'll have to pay for each extra mile at a set rate.
Mileage penalties are extra charges you have to pay if you drive more miles than what your lease allows. This can make leasing a car more expensive if you're not careful about how much you drive.
Honda Financial is the part of Honda that helps people pay for their cars, either by leasing or getting loans. They set the rules for how much you can drive and what happens if you go over.
Positive equity means your car is worth more than what you owe on it. If you sell it, you can make money instead of losing it when you return it to the leasing company.
Residual value is how much a car is expected to be worth when your lease ends. It helps you know how much you would need to pay if you want to buy the car after leasing it.
Carfax is a company that gives you a report on a car's history, like if it was in an accident or had repairs. This can change how much the car is worth.
Car
Honda
Honda is a car brand that makes many popular vehicles, known for being dependable and good on gas.
Dealer payoff is the amount a car dealership pays to clear the loan or lease on your old car when you trade it in. It might be a little different from what you see as the buyout price.
Carvana is a website where you can buy or sell used cars online. They even have special machines that look like vending machines where you can pick up your car.
Vroom is a website where you can buy and sell used cars online. They deliver the cars to your home, making it easy to shop for a car without going to a dealership.
Certified pre-owned means the car has been checked and approved by the dealer or manufacturer. It usually comes with a warranty, so you know it's in good shape.
Captive finance companies are banks owned by car manufacturers. They help people buy or lease cars from their brands, usually with better loan options.
A hybrid car is one that uses both gas and electricity to run. This helps it save on fuel and is better for the environment compared to regular cars that only use gas.
The Honda CR-V is a type of car called an SUV, which means it's a bit bigger and can carry more people and stuff. It's known for being dependable and good on gas, making it a favorite for families. The hybrid version is special because it uses both gas and electricity to save even more on fuel.
A franchise dealer is a car dealership that is allowed to sell cars from a specific brand, like Honda or Volkswagen. They follow rules set by the car company and can only sell certain cars in their area.
Maintenance records are papers that show what work has been done on a car, like oil changes or repairs. They help buyers know if a car has been taken care of properly.
Wholesale price is what dealers pay for cars when they buy them in bulk. It's usually lower than what you would pay if you bought the car yourself from a dealership.
DMV fees are the costs you have to pay to the government when you register a car or transfer its ownership. These fees can add up when you're buying or selling a vehicle.
Market value is how much a car is worth right now if you wanted to sell it. It depends on things like how well the car is kept and how many people want it.
Excessive wear and tear means the car is more damaged than it should be after being used. If this happens, you might have to pay extra when you return the car.
Kelly Blue Book is a website that helps you find out how much a car is worth. It's a popular tool for checking car prices, but they don't actually buy cars themselves.
A used car listing is an online ad that shows a car that's for sale. It usually has pictures and details about the car to help buyers decide if they want it.
Tread depth is how deep the grooves are in your tires. Deeper grooves mean better grip on the road, which is important for safe driving, especially when it's wet or slippery.
A trade-in is when you give your old car to a dealership to help pay for a new one, making it cheaper for you to buy the new car.
LIVE
Hey everyone and welcome back to The Straight Shift.
The podcast that cuts through all of the bullshittery that costs you money when it comes to buying,
selling, and maintaining cars. Today's bullshittery is brought to you by the leasing companies.
Let me tell you a story. I just helped a client who was at the end of their lease on a 2023 Honda
CR-V hybrid sport touring. Great little car, super popular, and hello hybrid. There was just one
tiny problem. They were 10,000 miles over their lease allowance, and that's at 25 cents a mile.
So let's do some simple math here. That's roughly $2,500 in mileage penalties,
staring them right in the face. They were fair to write that check, but I said, uh, no. Let's take
a look at this. According to the lease and letter from Honda Financial, they had three options,
and this is typical with leases. They could either lease another Honda. Of course, that's what they
want them to do. They could buy out their lease and keep that car, or they could turn it in and pay
the overage charges. Notice anything missing there? Nowhere in that letter does it say, hey,
by the way, your car might actually be worth more than the buyout amount. You might have positive
equity, negative equity, because that's not what the leasing company wants to do. They want to keep
any positive equity for themselves or for their dealers. So here's what we did instead. The buyout
was just over $26,000. I shopped it around and got them $30,000 for this car. So instead of
chucking out $2,500 in overage charges, they pocketed about $3,500 in positive equity.
So that's what I'm going to tell you how to do today. This is going to be an educational podcast
on what to do at the end of your lease and how to keep any positive equity for yourself
and not for the leasing company. So let's get into it. Let's start out by talking about the
biggest leasing myth. Everybody thinks, oh, it's a lease. I don't own the car. I have to either turn
it in or buy it out. Yes and no. True. You do not technically own the car. Your name is not on the
title, which you will never see anyway. The leasing company's name is on the title. However,
you have more control and more options at the end of that lease than the leasing companies and the
dealers want you to think you do. Because your name's not on the title, you can't just sell it to
whomever you want. You can't sell it privately unless you buy it out first. And you usually
can't sell it to just any old dealership. But that doesn't mean you don't have options. Every lease
has what's called a residual value, which is usually approximately the same as your buyout
amount. This is contracted at the beginning of the lease. It's not something you control. It's not
even something the dealers control. This is set by the leasing company, which with new cars is
typically the manufacturer's captive finance company. So in this case, Honda Financial. That
number's fixed. You cannot negotiate it. And it's what the leasing company estimated that the car
would likely be worth at the end of the lease term with however many miles on the car that was
agreed upon for the lease. So in this case, it was a three year lease with a maximum of 36,000
miles. So that residual value is what the leasing company said. And this is about what we think the
car is going to be worth at the end of the lease with 36,000 miles on it. So that's what they said
as a residual value. But it's just an estimate. It is not, however, the actual market value of
the car. They can try to predict that, but they don't have a crystal ball anymore than I do.
If the market value of the car at the end of your lease happens to be higher than that buyout
amount, you have equity. That is positive equity. Regardless of how many miles are on the car,
it's however much money someone in the market will pay for that car at that given time. So
sometimes you may have positive equity, even if you're over your miles. Sometimes you won't,
even if you're at or under the miles. That's just the way market values work. Typically,
if you don't have positive equity at the end of your lease, it's because either you're way over
the miles and it's not a car that's super hot in the market, or the car was in a wreck during the
lease. And even if it was repaired, that's still on the car facts, and it affects the market value
of the car. It could be because the residual was artificially inflated by the leasing company in
your contract in order to make that lease more attractive to get people to lease with lower
monthly payments because they were having trouble selling those cars. Or it could just be some random
crazy thing that happened in the market and the value of that model just tanked or just didn't
hold its value as well as the leasing company thought, maybe it's just not a popular car.
But if the market value is higher than that residual, that equity belongs to you. It does not
belong to the leasing company, no matter what they want to think, doesn't belong to the dealer,
it belongs to you, even though your name is technically not on the title. So explain this
week, we kind of need to back up a little bit and talk about how leasing used to work before
the pandemic, the gift that keeps on giving. Previously, when you got to the end of your lease,
you could actually trade it in or sell it to any dealer you wanted to. My clients,
they didn't want another Honda, we got them a new Subaru, we would have just been able to trade
that lease Honda into the Subaru dealership just like any other trade. Just like if you had a
traditional loan on the car, they would have called up the loan company and said, hey, give me a 10
day dealer payoff might be slightly different than the actual buyout number for you as a customer,
but they used to be really close. And then you just handle it as a normal trade in,
they'd pay off the lease just like paying off a loan, leasing company would send them the title
that car goes into their inventory, they get to turn around and resell it. What happened during
the pandemic was that the insanity of the market with there being so few new cars and the value
of the used cars, especially the nice gently used ones went through the roof. Companies like Carvana
and Vroom and even CarMax were paying ridiculous amounts of money for those used cars. I had a
lot of clients who sold their used car for more than what we paid for it brand new just a couple
years prior. And a lot of people were doing that with their leased cars. So what happened was Carvana
and CarMax and all these independent dealers were suddenly sucking up all of that gently used
good quality inventory that normally the franchise dealers relied on people just blindly
turning in their leases for their certified pre-owned inventory. So all of a sudden these
franchise dealers, they didn't have any new cars to sell and they didn't have any certified pre-owned
inventory to sell because these other companies were literally sucking up all the inventory
by paying stupid prices. It was literally like the Hunger Games. Now granted that came around to
bite some of these companies in the butt and they overplayed their hand and got in a lot of
financial trouble but they had help because what the leasing companies did and remember these are
the captive finance companies that are owned by the manufacturer HANA Financial Toyota Financial
they said you know we're not happy about this we need to protect our dealers make sense their
dealers are their franchisees they have a legal obligation to help them to protect them and so
what they did was okay fine we're just not going to release the titles to anyone except our franchise
dealers. So that's how Carvana got stuck with some cars that they could not get the title to
and it just got really really crazy and all of a sudden even though your contract as the person
leasing the car didn't change the leasing companies changed the rules and they said you know what
you cannot sell your car to anybody but one of our franchise dealers and the way they phrased
it was you had to turn it in to one of the franchise dealers but that's not actually true
you could still sell it to any of their franchise dealers and you know what those franchise dealers
were paying for those cars as well because they knew they were competing with each other so
you could still shop your car around and hopefully get some positive equity the dealers also knew
hey we don't have to compete with Carvana with CarMax or even the other franchise dealers down
the street for different brands we're only competing with each other and that did hurt your
competitive advantage so you weren't able to get as much equity out of it but those dealers were
still competing with each other especially within a geography where you often have different dealer
owners different dealer groups owning the same franchise for example here in Charlotte we have
Hendrick and they own three of the Honda stores in town but then you've got some other Honda
stores Terry Taylor owns a couple Honda stores there's a couple other Honda stores so they are
still competing with each other and that means they're competing with each other for inventory
fast forward a little bit we're out of the pandemic inventory is still a little wonky
but it's not quite the Hunger Games anymore but they still want certain off lease gently used
well cared for vehicles anything with the word hybrid in it tends to be one of them and for
Honda the CRV hybrid is their best seller with the affordability crisis and all the nonsense
going on with tariffs and if you're not familiar with what's going on with all of that be sure to
sign up for the straight shift newsletter which is the every two weeks newsletter that runs opposite
this podcast it's a companion to it that's where I get into a little more behind the scenes of what's
currently happening in the industry because it's nuts and it changes every week I think it changes
with uh every press conference but I talk about that there what that means is that the Honda CRV
hybrids the gently used ones still totally hot in the market with Honda financial they never
changed the rules back and most of the leasing companies didn't so we could still only sell
this Honda to a Honda store a Honda franchise dealer some of the manufacturers like Volkswagen
said oh you can sell it to whomever you want oh but the dealer buyout price is totally different
if it's not one of our dealers and it was basically a hugely inflated it was a retail price
which erased all of your equity anyway basically the same thing you had to sell it back to one of
their dealers so here's what you do and here is what I did I shopped this car around to all of
the Honda dealers about six of them in the greater Chicago area the hybrids are even hotter up there
around major cities and so I got the Honda dealers into a bidding war with each other
because I told them hey I got a client that has this really nice CRV hybrid to sell 46,000 miles
great condition I sent them all of the information down to the tread depth of each tire because
that's part of my process for my clients trades sent them a boatload of pictures even sent them
copies of the maintenance records so that they know that it was well maintained and I shopped it
to the dealership where they had leased it from as well as all the other Honda stores in the area
all but one of whom was owned by different dealership groups so they were desperate for
this car in fact I'm still getting calls and remind them no sorry we already sold it I gave you a
window I told you to give me the best offer and we got what we wanted and we sold it granted it is
still a wholesale price it's still a trade-in price if you want to get a retail price from your
leased car then you do need to buy it out and when you buy it out you typically have to pay taxes
again because you're essentially buying your own used car so you're going to pay the taxes you're
going to pay the DMV fees again which is going to cut into your equity and then you hope to turn it
around and sell it to a private individual but if you're going to be selling it to a dealer you have
to be realistic and know that it's going to still be a wholesale price but that's okay because you're
just trying to get out of this car clean you don't want to pay any overage charges and you want to
be able to keep any equity for yourself it's just more challenging when the car you want to replace
it with is not the same brand and actually I think we probably got a better deal shopping it around
to the different haunted stores getting that bidding war going and not tying it to the purchase
of the car that we were getting because a lot of people will go in and they want to get another car
just like the one they had they just want the newer version or maybe they want to upgrade into a slightly
larger one and they just take in their leased car because the dealers like to say hey we'll pay off
your lease no matter how much you owe over your mileage don't worry about it we got you covered
well yes and no what they do is usually one of two things if they are very very ethical and very
transparent and very upfront they will recognize that the value of the car the market value of the
car if it is truly higher than the buyout then they will offer you a fair market wholesale price
for it that will just erase your negative equity or what they tell you your negative equity is again
don't believe what they tell you you have to come in armed with those numbers yourself so that you
know that you are getting a fair price for that trade vehicle I don't care if it's leased it's
still a trade in that situation and so they know that most people are just worried about their
mileage overage and so if the dealer can make that magically vanish either through equity
or if you don't have positive equity or they don't care that you have positive equity they
want to make that money for themselves they will give you that buyout price and just roll the mileage
overage charges into the new lease and hope that you don't notice so this is where it can get tricky
step one if you're coming to the end of your lease you need to know one what your buyout is
and that will be on your original leasing paperwork because remember that was set at the very beginning
of the lease it's in your contract they cannot change that the only thing they can do is charge
you for mileage overage at the rate that's in the contract it's usually anywhere from 20 to 30
cents a mile and they can charge you excessive wear and tear that's if the car is more beat up
than it should be and sometimes they have some leeway on that but they cannot change that buyout
so first of all know what that is then you want to go out and look at what is my car
actually worth in the market today and there's different ways of doing that lots of people
will go out to kelly blue book and run it through nothing wrong with doing that i do that too just
to get a benchmark but remember kelly blue book doesn't buy cars so it's just a theoretical number
i run it through places like carvana and car max that gives me a true market value
for someone who would actually pay for that car if they could now you have a realistic number and
now you can start shopping around the dealers are going to want you to bring the car in so
they can look at it and i get that but you don't want to waste your time driving all over the
greater whatever area where you live and physically visiting every dealer so you want to compile
all of the information you have on your car you want to get the vin you want to give them the
mileage you want to if you have maintenance records which you should you should always keep
your maintenance records if you've done your maintenance at the dealership just call up the
service department and ask them to email them to you they will usually in a pdf but you should be
keeping your records and take a bunch of pictures detailed pictures like you would see on a used
car listing if you were on auto trader or cars dot com or whatever they want to see the details and
be honest we're not trying to screw over the dealers here we're trying to be fair so i take
very detailed pictures inside and out if there are any blemishes if there are chips in the paint
scratches certainly if there are any dents or scuffs get close up pictures of that and tell
the dealers about it you want to be honest that's just the way i roll the more detail you have even
take pictures of the tires so that they can see the tread depth what i have my clients do if they
don't have an actual tread depth gauge which the average person doesn't have take a penny look at
abe lincoln granted this is going to be harder because we don't have pennies anymore but if you
have any pennies take the penny take abe and dunk him head down into the tread where the wear bar
is kind of just rest his head on the wear bar your tire and then take a picture because the
dealers will be able to tell about what the tread depth is based on how much of old lincoln's head
they can see or just get them a good picture that shows the tread on all four tires be honest has the
car ever been smoked in has it transported pets i recommend going ahead and really cleaning up the
car well before you take these pictures because the nicer that car looks the more they're going
to offer you because the less they're gonna have to do to recondition it for resale and plus they're
they are human despite what a lot of people think car dealers are humans and they look at a dirty car
and go just like you would so clean it up as if you were selling it to a private individual and
then send all those pictures to the dealer they're still going to want you to come in to finalize the
price but be firm with them and say you know hey i am shopping my car around to all of the dealers
in the area and so you're competing with every other Honda store or Toyota store whatever your car
is and i don't have time to drive it around to every one of them so i am gathering all of my
initial quotes online here are all the documents on the car give me your best number and obviously
if you have offered me the best amount of money and we agree to do this you can inspect the car
physically once i get there and if there are any surprises then we can talk the numbers again
but i am being very transparent with you about the condition of this car and again if you find
something upon inspection that i don't know about that i didn't disclose then we'll talk again
i've never had that actually happen because i'm very very thorough with assessing the condition
of the car and i'm very honest and transparent with my dealers and they appreciate that and
they would appreciate it from you too so this is how you got a bidding more going most dealers are
not going to give you a firm quote on a buyer's order because they know that you can shop that
but even so know what the car is truly worth based on your research based on maybe running it through
carmax's online tool and then if you get to that number and the dealer is being really easy to work
with you can decide when to stop the bidding war they're only going to go so high because they
still do need to be able to resell it at a profit but we got up to actually more than what the car
max number was car max had come back with 29 000 which is kind of right in the middle of where
kelly blue book was and what i estimated it was going to be worth based on my own back end research
and so i got i told a dealer i said look you really want this car he admitted he wanted this car
badly and i said all right here's the deal if you'll go to 30 000 we'll get this done
my client can come in tomorrow and we'll just get it done cut him back a check for the positive
equity and we'll call it a day because at that point i was done shopping it around and we wanted
to get it done and we were coming up on the deadline for the lease now i did not tell them
that this was a leased car because it's their own franchise when they ran the vin they would
know that so i wasn't hiding from them but i wasn't going to hang a lantern on it either
that's up to them to run that but they would see it when they ran the vin so they knew it was a
leased car but they desperately wanted it and there was no hope that it would get turned back
into them we ended up selling it to the sister store to the haunted store where they originally
leased it from because they were the best communicators they were really transparent with me
and they're like okay we'll go to 30 if we can do this tomorrow and we just came to that agreement
and it was great my client literally went in they took five or ten minutes to look under the hood
look over the car just make sure there wasn't anything that had been missed and then they
had already pulled the payoff amount from the leasing company and so they had the checks ready
to go paid off the lease gave my client a check everybody went home happy and i'm sure that by
the time this podcast airs that car will already be on their lot for resale if it hasn't already
sold so this is how you can get any positive equity out of your lease even if you're over your
miles and despite what the leasing company will tell you now before we wrap up i do want to give
you just one more secret dealers have also found some tricky ways to get around what the captive
finance companies are doing so for example if there's a large dealership group say like Hendrick
they have lots of different franchises if you are buying say like in our situation a Subaru but your
least car that you want to get rid of is a Honda if the Subaru dealership if they have a what i call
a sister store meaning another franchise that is owned by the same dealership group in the area
they have found little ways behind the scenes to still be able to take your least car in on trade
but then run it through their other franchise to make the leasing company happy you typically
don't get as much positive equity this way but it can be more convenient and it can still work so
you might ask them if you are buying say a Subaru might say hey you guys own a Honda store
or better yet do that research yourself and just google and see if there is a Honda dealership
under the same group in your area you can say hey i know you've you've got a sister store
can we do this deal and you can run it through your Honda store some will some won't that's just
the dealership policy and if they've figured out how to make it work on the back end so nobody gets
in trouble that is not my business if they want to do that that is their decision i'm cool with it
but that can be a hack to get around that and make your life a little bit easier so you don't
have to do the two vehicles under two transactions but i still recommend you do that even if you are
buying the same brand so let's say my clients did want another Honda CRB hybrid they considered it
i talked them into the Subaru because it was a better fit for them but if they had i still would
have shopped their lease around to all the Honda stores to see who would give the best money again
to combat that oh this is the least car they're trading it in for a new one we're gonna try to
keep as much of that money for ourselves as possible no no no no no i always shop the trade
separately but especially when it is leased because there could be a huge variance i had a client that
had a Volkswagen out in LA and it was an electric car and i thought surely the downtown Los Angeles
store would put the most money on it but they didn't a store about 30 miles away outside of town
put $6,000 more on it than the LA store because it turns out the LA store was getting all of the
lease turn-ins so they weren't as desperate this other smaller dealer totally desperate for this car
and so we needed six grand granted that was during the pandemic and it was during the rise of
electric cars i don't expect to see that again but especially if you have a leased hybrid you
probably have positive equity unless that car has been erected to within an inch of its life and
repaired and is not worth anything anymore i hope this was helpful for those of you who have leased
cars leasing is a lifestyle it is not a good idea to use leasing as a financial strategy to
afford a car because there are so many gotchas but don't fall for the lease and lie of you have to
either turn it in or buy it out that is not true you just have to know how to maneuver around the
obstacles that the leasing company has placed in your path there are ways around it if your car
is in demand in the market and it's in good shape again folks i hope this was helpful there's an
entire module dedicated to leasing in my online course which you can get to at carbinecourse.com
i'm going to be revamping that a little bit and i may split out the leasing into its own separate
online course because it really is its own animal but i do teach all of my secrets in those courses
well i hope this was helpful until next time folks drive safely i'm out of here
you
About this episode
Navigating the end of a car lease can be tricky, especially when it comes to understanding equity. This episode dives into the often-misunderstood options available to lessees, highlighting a case where a client avoided $2,500 in penalties by leveraging their car's market value. The discussion covers the importance of knowing your vehicle's residual value, how market conditions affect equity, and strategies for maximizing returns when turning in a leased vehicle. Insights into the leasing industry's changes post-pandemic and tips for negotiating with dealers make this a valuable listen for anyone nearing the end of their lease.
In this episode of The Straight Shift, The Car Chick® discusses the intricacies of car leasing, particularly focusing on what to do at the end of a lease. She shares a real-life example of helping a client navigate lease end options, emphasizing the importance of understanding positive equity and the often-misleading information from leasing companies. The conversation covers the impact of market dynamics on leasing, the importance of transparency when dealing with dealerships, and practical steps for maximizing equity at lease end. The episode aims to empower listeners with knowledge to make informed decisions about their leased vehicles.
Takeaways
Leasing companies do not disclose positive equity options.
Market value can exceed the residual value, creating equity.
Pandemic changes have altered how leases are handled.
Transparency with dealers can lead to better offers.
Documenting your car's condition is crucial for negotiations.
Researching market value helps in understanding equity.
Bidding wars among dealers can maximize your return.
Resources
CarBuyingCourse.com TheCarChick.com
You can view a full list of resources and episode transcripts here.
