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What Is Lease Equity?
Lease equity is the difference between your vehicle’s current market value and your lease payoff amount. If your car is worth more than what you owe to buy it out, that positive difference is called equity and it belongs to you.
It’s a hidden benefit many lessees don’t realize they have until lease-end.
Lease Equity Meaning in Car Leasing
In the context of car leasing, lease equity works similarly to home or auto loan equity. It represents the financial value you’ve gained because your leased car has depreciated less than expected.
You might have lease equity if:
- Used car values are up, due to market demand
- You’ve kept the vehicle in excellent condition
- You’ve driven fewer miles than your contract allowed
- You secured a lease with a high residual value
Equity can be used toward:
- Purchasing the vehicle and reselling it for profit
- Trading in your leased car toward a new vehicle
- Reducing the down payment or monthly cost of your next lease
How Lease Equity Works
Here’s a simplified breakdown:
- Get your lease payoff quote from your leasing company.
- Appraise your car’s current market value using tools like Kelley Blue Book, Carvana, or Edmunds.
- Subtract the payoff amount from the car’s value.
Example:
- Lease payoff: $16,500
- Vehicle’s current value: $19,500
- Lease equity = $3,000
You can use this equity as cash in hand, trade-in credit, or a down payment for your next car.
Pro tip: Many dealers will gladly handle the lease buyout on your behalf and apply the equity to a new deal, but they might not always offer full value. Shop around.
When Does Lease Equity Make the Most Sense?
Lease equity is most valuable in specific market conditions or driver situations. Recognizing when to act can help you unlock hidden value:
- Strong used car market: When supply is low and used vehicle prices rise, your car may be worth more than its residual value.
- Low-mileage leases: If you’ve driven fewer miles than your contract allows, your car retains more value.
- End-of-lease timing: The last 90 days of your lease is the ideal time to compare payoff vs. market value.
- Well-maintained vehicle: Cars in excellent condition (no major dents, mechanical issues, or interior damage) typically appraise higher.
Lease equity can be especially helpful if:
- You’re planning to switch vehicles and want to reduce upfront costs
- You’re considering buying out the car and reselling it yourself
- You want to exit your lease early without penalty, using equity to cover the payoff
Important: If your vehicle has negative equity (worth less than the payoff), it’s usually better to return the car or wait until the value rebounds. Not all cars or markets generate positive lease equity.
Lease Equity in Car Leasing Agreements
Your lease agreement itself won’t mention “lease equity” as a term. However, it contains the residual value and buyout conditions, which are critical for calculating equity.
You’ll encounter lease equity:
- Near the end of your lease, when you compare market value to the buyout price
- Midway through the lease, especially in strong used car markets
- When considering a trade-in or early exit, and the dealer appraises your car
Equity is most relevant in today’s climate, where many leased vehicles are worth more than their residual values due to vehicle shortages and inflation.
Related Terms in Car Leasing
- Prev Term: lease disposition fee
- Next Term: lease extension
- Related Terms: lease buyout, residual value, lease payoff amount, trade-in value