Should I Use My Trade-In As a Down Payment On A Lease?

Illustration for article titled Should I Use My Trade-In As a Down Payment On A Lease?
Image: Toyota

As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are discussing whether or not to use equity from trade on a leased car, and how to tell how long a dealer has been sitting on a used car.

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First up, is it wise to use the equity from a trade as a downpayment on a lease?

My family is looking to get a new minivan, 2021 Odyssey or Sienna and we are going to be trading in a Subaru Outback. I was wondering if there was a negative to potentially trading it in toward a lease initially with the thought that we would buy it after three years and enjoy low car payments for the next three years to pay off other items.

I wasn’t sure if there would be lease and purchase fees or tax complications that might make this not be the best plan for us. I’ve never done a lease before so there could be other negatives we have not thought about too.

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There are usually no additional fees or tax complications when trading in a car on a lease, but there are a few schools of thought as to whether or not a downpayment on a lease is a good idea, whether it be a trade or cash.

Some people think you should never, ever put money down on a lease. The main reason is that if your leased car gets totaled, that down payment money will not be recovered even though insurance will cover the cost of the car. Having your car totaled in a collision is a pretty unlikely scenario, but it’s not even the main issue here. The key reason to minimize or avoid down payments on leases is that you are basically just putting money on the front end to bring the payments down. Your total lease cost is the same regardless. There is no overall cost advantage to using a down payment.

However, I understand that most people leasing a car are doing so with a monthly budget in mind and they are trying to keep their payments reasonable. In order to do so, that may require some money upfront to balance the scales and put the payments in line with your comfort zone. I don’t see anything wrong with this providing you are not putting an excessive amount down. My general guidelines are no more than 10 percent of the MSRP of the car. Of course, less is better if you can swing it.

In the case of this trade, doing it and using the equity towards the lease really all depends on how much equity you have. If there is still a loan balance and you can get a few grand out of it, that is probably OK to buy down your monthly payment a bit. However, if the car is free and clear, you may want to consider using a little bit of the equity and have the dealer cut you a check back for the balance. For example, let’s say your Outback is worth $15,000. You do not want to use all of that towards the van lease, maybe do $3,000 down out of the trade and the dealer will give you a check for the remaining $12,000.

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Is there an easy way to know how long a dealer has had a car in its inventory?

Are you aware of or know any place where I can find the information for how long a car has been sitting on a dealership’s lot or how I as an average shopper can go a dealer’s website to determine the days on lot number.

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Dealers have access to their own databases that are subscription-based to see this information, but it is not really publicly available. However, vehicle history reports like CarFax or Autocheck may tell you when the vehicle was offered for sale by that particular store. You can calculate the time on the lot from there.

The main reason why you would want to know this information is to try to use it as leverage to get the price down, but what you want to understand is that most dealers are already adjusting their pricing based on the time on the lot. Chances are if the car has been sitting for 90 days or more that unit has already undergone several reductions, and they may be at a “rock bottom” situation. If the car doesn’t sell at or close to the asking price they will send it to auction.

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Got a car buying conundrum that you need some assistance with? Email me at tom.mcparland@jalopnik.com!

Tom is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He saves people money and takes the hassle out of buying or leasing a car. (Facebook.com/AutomatchConsulting)

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DISCUSSION

partypants3000
PartyPants3000

I still struggle to ever find a scenario where leasing a vehicle makes any sense whatsoever.