Trading In a Leased Car After an Accident

If you've experienced a minor or major accident with your leased car, consider the following critical factors before attempting to trade it in at another dealership.

Step 1: Insurance Report the Accident

The first and essential step after a car accident, especially one involving a leased vehicle, is to report the incident to your insurance company. Your insurer will assess the extent of the damage and determine whether it should cover repair costs. Understanding your insurance coverage can significantly influence your options for handling the trade-in process.

Step 2: Review Your Lease Agreement

Inspect your lease agreement for detailed procedures regarding vehicle return, especially in the event of damage. Depending on your lease terms, you might be required to repair the vehicle before returning it. Failing to follow these guidelines may result in additional fees or penalties.

Step 3: Get Permission from the Leasing Company

Before you consider trading in the car, obtain permission from your leasing company. Some dealerships might not accept damaged leased vehicles as trade-ins. Even if they do, there are specific conditions and processes you need to follow.

Step 4: Dealership Policies

Each dealership has its own set of policies regarding trade-ins of leased vehicles. Don't assume that any dealership will accept a damaged vehicle. Reach out to the dealership of your choice to clarify their approach and any prerequisites for accepting a trade-in.

Step 5: Consider Alternative Options

If trading in isn't a viable option, consider returning the vehicle directly to the leasing company. They have a process in place for handling such situations. This can often be more straightforward than navigating the trade-in route.

Dealership Process for Trade-Ins

Here's an overview of the process if you decide to trade in a leased car:

1. Pay Off the Lease

If the damage is minor and your insurance company deems the car repairable, you'll have to get the car fixed. Otherwise, if the vehicle is considered totaled, your insurance company will pay the market value for the car and hopefully satisfy the lien.

State your intention to trade-in the car to the dealership. They will assess the vehicle's condition and determine the trade-in value. The process of buying out the lease (also known as the "buyout") typically involves paying the remaining lease payments, the residual value, and any lease termination fees listed in your agreement.

For example, if you owe 12 more payments at $500 each, the residual value is $20,000, and the lease termination fee is $300, you would need to pay $26,300 to fully buy out the lease.

2. Vehicle Repair

Since the car is under lease, you have full insurance coverage. You or the dealership accepting the trade should work with your insurance company to pay for the repairs. Typically, you'll only need to pay the deductible.

3. Trade-In Value and Financing

Assess the trade-in value and compare it to the amount needed to buy out the lease. If the trade-in value is higher, you will not have to pay cash. If the trade-in value is lower, you will have to pay the difference.

For instance, if the trade-in value of the car is $28,000, and your total buyout cost is $26,300, you will have equity of $1,700. If the trade-in value is $24,000, you would need to pay an additional $2,300.

Challenges with Trade-Ins

Halftime before 2023, some manufacturers made it particularly challenging to trade in a leased vehicle. However, these hurdles are no longer as prevalent. Most dealerships and leasing companies can now navigate the trade-in process more smoothly. Work with the dealership accepting the trade to find a solution that works for everyone involved.

Understanding the complete process and being prepared to navigate the nuances of trading in a leased car can help ensure a smoother and more successful experience.