Yes, you can absolutely trade in your used car when you are leasing a new vehicle. This process, often called a "lease trade-in," is common and works similarly to a trade-in for a purchase. The equity in your current car is applied to the new lease, which can significantly lower your monthly payments.
When you trade in a car you own to a dealership, they will appraise its current market value. If the car is worth more than what you owe on it (if you have a loan), you have positive equity. This equity doesn't go to you as cash; instead, it acts as a capitalized cost reduction on the lease. This is a key term: it means the total amount you're financing over the lease term is lowered, which directly reduces your monthly payment. If you owe more on the car than it's worth (negative equity), that amount is typically rolled into the new lease, increasing your monthly costs.
It's crucial to get your car's value from multiple sources before going to the dealer. Use online tools like Kelley Blue Book (KBB) or Edmunds for an estimate. Then, get an official purchase offer from a service like CarMax or Carvana. Having these numbers gives you leverage to negotiate a fair trade-in value with the leasing dealership.
| Consideration | Scenario & Impact on Lease |
|---|
| Positive Equity | Your car is valued at $15,000, and you owe $10,000. The $5,000 equity is applied as a down payment, lowering the lease's capitalized cost. |
| Neutral Equity | Your car's value equals your loan payoff. The trade-in simply clears the old loan, with no impact on the new lease's upfront cost. |
| Negative Equity | You owe $18,000 on a car worth $15,000. The $3,000 difference is added to the new lease, increasing your monthly payment. |
| Selling Privately | A private sale often yields a higher price than a trade-in, giving you more cash for a larger lease down payment. |
| Dealer Incentives | Sometimes, manufacturers offer "trade-in assistance" cash bonuses that can be more beneficial than your car's actual equity. |
The main advantage is reducing your upfront costs and monthly payment. The primary disadvantage is that you don't build ownership equity in the leased vehicle. You're essentially using your current asset to subsidize a long-term rental. Weigh the immediate financial benefit against your long-term goals.
