When you lease, you agree a price at which you can buy the car at the end: the residual value. If the car turns out to be worth more than that, the difference is equity, and you may be able to capture it.

Most people never check. They return the car and the leasing company keeps the difference. This is part of your car lease end options.

How lease equity happens

The residual value is a prediction, set at the start of the lease, of what the car will be worth at the end. Predictions are sometimes wrong.

If used car prices rise, or your model holds its value better than expected, the car's real market value can end up above the residual. That gap is your equity.

It is also possible, and common, for the car to be worth less than the residual. In that case you simply return it and the leasing company absorbs the loss, which is one of leasing's real protections.

How to check

1. Get your buyout price from the lender. Not just the residual. Ask for the full payoff: the residual, any remaining payments, the purchase option fee, and taxes.

2. Get real offers for the car. Online instant offers, used car retailers, and local dealers. Get several, in writing if possible.

3. Subtract. Best offer minus buyout price is your equity, before any taxes that apply to a buyout in your state.

Ways to capture it

Trade it in on your next car. The dealer buys out the lease and applies the equity to your next deal. Often the simplest route. Note that some lenders only allow buyouts by dealers of their own brand.

Sell it to a third party. A used car retailer or another dealer buys out the lease and pays you the difference. Some leasing companies restrict or block third party buyouts, so check with your lender before relying on this.

Buy it out and sell it yourself. You pay the buyout, take ownership, then sell. This works around third party restrictions, but you may pay sales tax on the buyout, and you need the cash or financing to do it. See is a lease buyout worth it.

Keep it. If the car is worth more than its buyout, buying it out means you are getting it below market value. Worth considering if you like it.

Things that reduce your equity

  • Sales tax on the buyout, in states that charge it. See sales tax on a car lease.
  • The purchase option fee in your contract.
  • Excess mileage and wear lower what buyers will pay, although if you buy the car out, the lender's mileage and damage charges no longer apply.

Timing matters

Used car values move. Equity that exists three months before your lease ends can shrink by the time it does. Check early, and if the numbers work, act rather than extending the lease and hoping.

If a manufacturer offers you a pull-ahead, check for equity before accepting, because returning the car through the program gives any equity up.

The short version

If your car is worth more than its buyout price, that difference is equity. Get your full payoff from the lender, get several offers for the car, and if there is equity, capture it through a trade in, a sale, or a buyout before returning the car.

If you want us to check your car's position against the market, send us the details.