The Expert Podcast

…So the used car values have fluctuated greatly over the last couple of years. In fact for many cars. The values of used cars has spiked up dramatically. It's making a difficult to find reasonably used cars but here's the thing. This is also affecting new car leasing Well how could use car values affect new car leasing Well here's how. When you lease a new car. Basically what you're paying for is the difference between what you pay for new and what it's going to be worth in a few years. For example if you lease a $40,000 car, for three years. And let's say at the end of three years it's going to be worth $25,000 Right. What that means is the depreciation of that car. Is $15,000. So that 15,000 is all you pay because with a lease you drive it for three years and then you turn it back in at the end and the value of the car in three years. The leasing company gets to keep right So you only pay for how much it goes down in value which makes leasing very cheap because you're only paying for the part that it goes down. Well what's happening is… the leasing company. have to guess what the car's going to be worth three years later. So if they let's say that it's a $40,000 car and they guess it's going to be worth 25,000 in three years… What if the car's worth 30,000 in three years Well, One thing about a lease is you have the option of buying that car. For that guest value So if they get 25,000, you can do one of two things You can either just turn the car in and walk away or you can buy it from them for that 25 Basically you're paying the rest of the car. Well if it's worth 30… And you only have to pay 25 You got a deal. What's happening, Cortez article CNBC And we're seeing this in our automotive division cars lease are worth an average of 4,000 more than expected. So the least companies guessed wrong, which is good for you as a consumer because. You have the option to buy that car. Even if you don't want to keep it you can buy it for 25 sell it for 30 pocket The difference. Right. So make sure that if you are getting to the end of your lease that you don't just turn in the keys and walk away Because if that car is worth 30 grand and you have a buyout of 25 and you just tossed the keys to the dealer and walk away now the dealer gets to make that profit. They get to own it for 25, they can sell it for 30 or 35 whatever it is. And make the profit You should keep that profit. So make sure even if you don't want your car anymore, that you're not just walking away from equity because the amount that the leasing companies guessed for the lease and value it's called a residual value. Was way, way off. They were way low, right? Not really their fault The market went up a lot more than they thought it was gonna So what they guess was. Reasonable based on historical values. It just the market went crazy in the last few years. So that's going to put you in a position of equity Now here's another thing. Where that also may affect you is on… a new lease… Leasing companies You're starting to guess a little higher now because they say Hey wait a minute. Maybe these cars will be. more So now maybe that $40,000 car. They're going to guess it's going to be worth 30. So now you only have to pay the difference of 10 instead of 15. So in theory Or lease payments on new cars now might be cheaper than what they were before. It depends on the lease company Some of these companies say yeah, the lease values were higher before to residual values but maybe it's not going to happen again So they're still going to be conservative. So if you're looking to lease a car shop around to see if there's a lease company to maybe using a higher value either way. If you get to the end of the lease, don't just walk away from your car. make sure that you're looking at your residual value and maybe not turn it in Maybe you could trade it in. Maybe you could say. To the dealer Look I want to buy a new car… The cars were 30. My payoff is 25 That 5,000 Put it towards my next car. And that's a difference between a trade in and a lease turn in. They both sound the same and they both look the same You bring in the car to the dealer and you're walking away. Just make sure they're not absorbing your equity. Without giving you credit for it on your next new car deal.