As many know, the used car market is insane right now. A friend of mine has a lease that's ending this month and I told him to submit his car to the different car buying services (Carvana, Carmax, Vroom, etc.) and see what they offered and then compare to his lease buyout. At first, my friend was like "no way it's worth it" and didn't want any hassle, but after some persuading and no risk submitting the car online, he gave in and did so. The highest offer came from Carvana and was more than $10k over the buyout on his lease! Luckily my friend is in a position where he can easily buy out the lease (if Carvana acts as the middleman it takes up to 60 days). I then told my brother, who has a few months left on his lease to submit his truck to see what they offered, and sure enough the highest offer was $8k over his buyout. My brother said "no wonder the dealer calls me at least 3 times a week asking if I want to turn in the lease early." I'm sure people have had lease equity prior to this craziness, but I bet it's more prevalent now with the crazy market!

 

So how does this all work? Do they come and pick up the car? If I buy out the car, lets saying at $100k, after tax it would be around maybe $110k, lets say. Are they offering $10k and $8k above the after tax price?

 

Definitely a unique time. Just make sure you and your friend are aware of any tax liabilities if he is do the buyout and then try to transfer/sell it. Some states require a sales tax payment, which can dampen the positive equity. And then with many states the time it takes to get the title to send over can take forever as well.

 

Buyouts are also not equal for private party vs same brand franchise dealer vs other branded dealers for some lenders as well.

 

Depends on the lender. Most today have the same buyouts irregardless of the reason for the buyout, but in the past you were right. I believe Ally was the last one with this setup and they discontinued that a few years ago.

 

VW and Audi do it today.

 

In Illinois you have paid "1/2 the tax" when you started the lease and when
buying out the lease you pay the other half.

 

They're the only ones left that do then, but that doesnt surprise me since their leases are so terrible. Mercedes, BMW, GM, Chrysler, Ford, Toyota/Lexus, Kia/Hyundai, Honda none of them do.

 

But dealers typically do have separate buyout totals, as they don't have to pay sales tax.

 

Our sales guy at BMW was up-front that a lot of folks have been turning in leases early and having a down-payment left over to go toward their next one, even when trading up.

 

That depends on the state. In MD there's no sales tax on a buyout because the lessee has already paid the whole sales tax on the total vehicle price. In a state with a monthly use tax the person buying out the lease does have to pay sales tax on the buyout price.

Sales tax and the buyout price on the lease are separate things.

 

I should clarify that they're not actually making money, they're basically just subsidizing what they put down on the car and the monthly lease payment they paid over the past 3 years. They won't be coming out ahead after all is said and done, but the car over 3 years will end up costing them ~$3k vs. $13k had they just walked away after the lease. And yes, they will pay sales tax on the buyout amount, but that still puts them ahead.

 

Lexus dealers havent been so accommodating. I guess they dont need to accommodate me when their cars are flying off the lots anyways, like the GX. One dealer said I dont haev much equity in my vehicle when the buyout is $33k and it is worth $40k, according to their OWN website.

 

This is the way to do it. In Tennessee at least, if you personally buyout the lease there is no way around paying the sales tax as the lease cannot be assigned to anyone but a dealer. But if you trade it to a dealer you get whatever you agree the value is, less the payoff.
As an example, my current MDX Advance lease in March 2020 had a negotiated cap cost (no money down) of $46,300 (MSRP of 59,275 with mfg to dealer incentives of 9k+, plus dealer discount). My current payoff is $40,600 (residual is $32,000 in March 2023). I see asking prices on comparable vehicles at $48k+ so if I wanted to buy a new vehicle, I'm guessing I could probably get $46k as a trade. While I would be netting about $6k of cash towards the purchase, in TN I would also not have to pay sales tax on the $46k I was given as a trade, a savings of about another $3,500.

 

Get estimates from Carmax, Vroom, etc. When you trade it in its all part of the negotiation and the demand for the new vehicle lets them lowball you.