Can I lease a car? How does it work?
June 7, 2016 4:04 PM   Subscribe

I own a huge truck currently and live in the city. I'd like to get something smaller. I currently own ~13k in a loan on the truck. How does this work? Does the leasing company pay my loan and then charge me for a lease? Help me understand this?

Living in the city and want something smaller. What are my options?
posted by Draccy to Grab Bag (7 answers total)
If you don't want your truck, you'll have to sell it. Sell it for more than you owe if you don't want to be underwater.

Possibly you can use it as a deposit on a lease, depending on how much it's worth and the whim of the dealership.

Ultimately a lease is not a great deal, although if you're looking to minimize short term costs it can be an okay to go.
posted by chesty_a_arthur at 4:30 PM on June 7, 2016

No, taking care of your current loan and getting a lease are two entirely separate processes, at least conceptually.

First, you pay off your loan of $13K. I imagine this involves selling the car in order to make the money needed to pay the loan, although you'll need to remove the security interest in order to provide clean title to the buyer. See your local DMV for procedures, and paperwork, to sell a vehicle with a loan against it.

Then you go to a dealer and lease something else. Typically there will be a modest down payment and a monthly payment for a fixed period such as 3 years, and then you go give the car back. That's all there is to it. At the end of the lease, you may want to lease something else, buy the car you were leasing as a used car, or buy something else entirely.

It is sometimes possible to trade in a used car when you want to lease rather than buy the next one. See here for more details.
posted by Joey Buttafoucault at 4:35 PM on June 7, 2016

Ugh, I don't have many options. I'll never sell my truck for that much.
posted by Draccy at 4:51 PM on June 7, 2016

You can use a trade in as part of a down payment on a lease. It will be tough if you current car loan is under water because usually what a dealer offers is less than a private sale value.
posted by unreasonable at 5:14 PM on June 7, 2016

We had a Subaru that we owed a fair bit of money on. We had just purchased it used, drove it across the country, and even though we had two mechanics check it out, it holed the engine in Wyoming and we replaced the engine in it. The power windows didn't work. The AC cut out all the time. Sometimes it wouldn't start. Basically, this car had seen some shit, and we were effectively underwater on it. There's NO WAY that shitbox was worth what we owed on it. This thing was a disaster.

My wife rolls up to a dealership during one of their 'zero down lease' sales that always seem to be happening, and just straight up says "we can do a lease with you guys, if you take shit shitbox off our hands, and pay off our loan and give us a lease for $x a month."

It took some back and forth, but they did it. We still to this day have no idea how on earth they made any cash off that car.

We chose to lease because we were rebuilding financially, and it was well worth it to have a lowish lease payment, and not have to worry about maintenance costs. Leasing isn't a great deal in many circumstances, but we've found it to be relatively benign and positive in some cases. It doesn't necessarily sound like that's the case for you though.

Your best bet would probably be to try and pay off as much of the truck as quickly as possible, and do a private sale to get you back in the black.
posted by furnace.heart at 7:24 PM on June 7, 2016

It's important to understand how leases make money for the dealership. It is a combination of the interest rate of the loan, and the expected resale value of the car. Thus, it is almost always a much better deal to lease a very expensive car (assuming the lessee has good credit) than a "budget" or daily-driver type car.

Very often, the reason that leasing a cheap car will give you a noticeably lower monthly payment than buying the same car is because the lease is written with an "optional" balloon payment at the end. In real life, this means negative trade in value on the car at the end of the lease, and they will encourage you to buy the (now past-its-prime) car, or trade up and sign a new lease.

If you want something smaller, you are probably much better off trading in your truck and buying something new, rather than leasing. The monthly payments will be slightly higher, but you can sell it for market value whenever you want, and you'll be able to shop around for loans. If you show up to the dealer pre-approved for an auto loan from a bank or (better) credit union, you'll be in a much better position to negotiate price and terms.
posted by Anoplura at 8:03 PM on June 7, 2016

We still to this day have no idea how on earth they made any cash off that car.

They didn't, they made the "cash" on the new lease you guys signed. My guess is that your lease payment was a bit higher than it would have been, sans Subaru shitbox.
posted by sideshow at 5:37 PM on June 9, 2016

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