What options do I have when trading in lease with equity?

Question

We leased a 2014 Honda Odyssey Touring-Elite in the U.S., and will be maturing our lease with right at the agreed mileage (36,000). We signed our lease with an estimated residual value of $23,000 -- Edmunds suggests that a trade-in would get us a value of about $28,000, netting roughly $5,000 in equity.

If we only consider two options: (a) buy-out the current 2014 model, or (b) trade it in for a 2018 model (not leased), how does the value of our current van get applied? What I'm trying to understand is, if we assume the MSRP was $45,000 of the 2018 model we want, are we effectively talking about a difference in:

• Buying the 2014 model we're using now, for $23,000
• Buying the 2018 model for $45,000 - $5,000 => $40,000

Where does the difference go in these two scenarios? Is it completely eaten up simply by the fact that it's a 2018 vs a 2014? Or am I misapplying my trade-in value?

Answer 1

I am not sure what difference you are looking for those numbers appear to be correct. (The new car will be more expensive because it is new vs your used car).

If you buy out the lease, you will pay the previously agreed upon price of $23k. You can then go and sell that vehicle for $28k (assuming that the trade in number is correct) and net a $5k profit.

If you buy a new vehicle you can the apply your $5k to the purchase price reducing the $45 to just $40. Note that depending on your dealership you might need to actually buy the leased vehicle and then sell it elsewhere to maximize your return on it. At minimum get a quote from a used car dealer on what they would give net of lease for it.