Whenever it comes to leasing or financing a car, it’s fair to want the best possible deal. Leasing a car may be an easier alternative but you can never get it right until you have the right information. You will probably have lots of questions in your head when leasing a car like can I use my trade-in as a down payment on my car lease? Yes, you can, in fact, trading your current vehicle to use as a down payment is a popular option but the right question would be should I even use the trade-in if I am leasing?

Before answering that, I would like to shed some light on the basics of car leasing.

I am pretty sure you know buying and leasing a car are two different things. You will never own the vehicle unless you purchase it at the end of the car lease term. When you are leasing a car, you have two options: Either pick a closed-end lease or an open-end lease. People mostly choose the closed-end lease according to which you agree to return the vehicle in a good condition by the end of the lease term. An open-end lease, on the other hand, is the one where you guarantee the residual value of the car. This means that by the end of the car lease, you will come up with the money to buy the car, finance the balance, or cover the difference if it is worth less than its residual value.

Nope, down payments aren’t necessary

When you are leasing a car, typically, you aren’t required to make any down payment. Down payments are only good when you are buying a car. Here is why:

  • It reduces your monthly payments
  • The interest charges are reduced
  • It helps in getting the loan approved
  • You don’t have to worry about upside down if the car is stolen

These things are not an issue when you are leasing a car.  Monthly payments in a lease are partly based on the number of miles you put into the lease. If more miles are built into the lease, your monthly payments will increase. Does down payment decrease your monthly lease payments? Yes, it does but you are not saving any money because you are simply paying the depreciation and interest charges in advance. You won’t be saving money as compared to the overall cost of ownership when you lease. Also, most leases are offered with gap insurance which means the chances of having an unpaid balance in case of theft are minimized. If the amount of the loan exceeds the value of the car by the end of the lease, the difference in the value is not your problem, it’s the bank’s problem. And making a down payment does not reduce the money factor in leasing. So, in short, you are better off without making a down payment.

You can trade-in if you still want to

If you want to pre-pay your lease, you can still trade-in your vehicle. Although dealers don’t refuse the trade-ins but it is recommended to do some research in advance. You must figure out what is the appropriate trade-in value for your car so that you can negotiate with the lender and get the best deal out of your leased vehicle.

If it helps, ask your dealership to provide you two quotes for the lease; one with the down payment amount and one without the down payment amount. Before accepting the offer, compare the total amount you will be spending over the term of the lease. To find the total amount spent, just multiply the amount of monthly payment by the number of payments due and combine it with the down payment amount and startup costs. When the total cost of the lease is in front of you, it will be easy to make the decision.

Before you make the down payment…

Before you decide to trade-in your car as the lease down payment, thinking it will save you money, you must know that there is no guarantee you will get that down payment back if the leased car is totaled or totaled in an accident. Even your gap insurance won’t help you in that case since it covers the difference between the value of the car and the payoff amount if you owe more than the worth of the car. And on top of this, if the leased car is stolen or totaled, the lease simply terminates. You never get your down payment back.

If you were doing that to save money, then it’s better to buy an existing car lease from QuitALease.com. It’s a great opportunity to drive the car of your dream (even a luxury model) without spending much money.