A lot has changed for people over the past few years. Many borrowers may now find themselves facing situations they didn't predict, such as poor credit due to job loss or medical bills. For some, this means not being able to renew a car lease as they had planned.

If this is the situation you find yourself in, you're in luck – the price of used cars has risen, and your three-year-old lease could be the ticket to a down payment for a bad credit car loan.

Market Values Soaring Over Residual

If you're at the end of your lease, now could be the time to purchase your leased car. A recent study from iSeeCars found the average three-year-old leased vehicle to be worth around 31.5% more than its predicted residual values. Or an average of $7,019 more – that's not chump change.

There's still a persistent shortage of microchips that are used to power everything from our cell phones to our cars. Lacking chips, production of new vehicles has slowed, causing the value of used cars to soar – especially three-year-old models coming off lease. This means big profits for you if you decide to buy out your lease now and then sell your vehicle.

Residual Value vs. Market Value

The value of all cars has increased over their three-year predicted values. iSeeCars compared projected three-year residual values for new 2018 models to current used car prices to find the ones that have the biggest profit margin.

Selling a Leased Car for ProfitSome highlights from the study include:

  • 2018 Dodge Charger: Worth 55.9% more than predicted. Potential profit: $11,806
  • 2018 Nissan LEAF: Worth 48.3% more than predicted. Potential profit: $6,167
  • 2018 Chevy Malibu. Worth 48.2% more than predicted. Potential profit: $6,392
  • 2018 Kia Forte. Worth 46.7% more than predicted. Potential profit: $4,913
  • 2018 Ford Expedition. Worth 45.8% more than predicted. Potential profit: $15,830

The 2018 Volkswagen Tiguan topped the charts, coming in at a whopping 61.3% increase over its predicted residual value, and a lot of them sold that year thanks to a redesign from the 2017 model. To see if your lease is among those getting top dollar in resale, you can check out the iSeeCars study.

Residual Values Explained

Leasing isn't like buying a car with a loan. When you get an auto loan, you arrange to make equal monthly payments for a certain amount of time until the entire cost is paid. You then own the car and the lender is removed from the title.

When you lease, you're only paying for the value of the vehicle for the time that you have it. Leases are typically 24 to 36 months (two or three years) long. Your monthly payment partially depends on what the residual value of the car is estimated to be.

Ideally, the value of the car at the end of your lease, plus the amount you already paid, should equal the cost you agreed on at the beginning of your lease term. Since residual value is set at the beginning of your lease term and is usually non-negotiable, there are two outcomes that can occur:

  • The estimated residual value was more or less accurate. When this happens, you can buy your leased car for the amount you agreed to, and if you were to turn around and sell it, you'd pretty much break even. This is ideal for lessors and dealerships and may encourage lessees to continue choosing to lease rather than buy.
  • The estimated residual value missed the mark. It's not always possible to predict what the market will do two or three years into the future (hello, pandemic). Sometimes, factors crop up that no one sees coming – like a global microchip shortage. Whether or not this is a good thing for you depends on how the mark was missed: high or low.

Could a Lease-End Buyout Yield You Big Profit?

If you're coming up on lease-end and want to put some extra cash in your pocket, buying out your leased vehicle could be a good way to do it. Remember:

  • A residual value higher than market value is not a good buyout deal. If you turn around and sell the car, you can't make a profit or break even.
  • A residual value lower than market value is a good buy. You can purchase your leased vehicle and make a profit to put on your next vehicle if you choose to sell.

Don't forget that it's a seller's market, so expect to need that extra money to put down on your next car.

Ready to Find Another Vehicle at Lease-End?

With used vehicles selling for so much more than projected, you'll want to find the best deals you can if you intend to replace your vehicle with something else. However, this might be no easy feat if you find yourself facing a bad credit situation.

It can be difficult to lease with a lower credit score. If your score has taken a hit over the past few years, you may find that you're facing a bad credit auto loan situation that you're unfamiliar with. At Auto Credit Express, we know how tough this can be and we want to help.

Not only can we provide you with insight and expert advice, but we can also point the way when the time is right to get your next auto loan. Let us connect you to a local special finance dealership that is signed up with lenders that work with many types of credit. It's fast, free, and there's never an obligation, so fill out our auto loan request form today!