Leasing a vehicle is great. One of the best parts about it is you get to make payments towards the use of a new car, truck or SUV, but don’t have to deal with any of the headaches of selling or trading it in when the time comes for a new car. However, it might not make sense to turn in your lease when your contract is up; you could potentially be walking away from thousands of dollars in equity. Let me explain…

After the lease term is up, a leased vehicle must be returned, or it can be purchased at a predetermined, depreciated price. Most lessees choose to simply return the vehicle because it’s quick, easy and they can often times get another lease on a new vehicle for  similar monthly payments.

When a vehicle is leased, the lessee is essentially financing a portion of a car’s cost for a certain period of time―usually two or three years. The portion that’s financed is the difference between the vehicle’s final negotiated sales price and what the vehicle’s value is estimated to be at the end of the lease including depreciation over the course of the period. This is more commonly referred to as the vehicle’s residual value.

Think about this example:  If a leased vehicle is $30,000 new and has an estimated residual value of $20,000 after three years, the lessee pays the difference between the two, spread out over the course of the lease period. In this scenario, if the vehicle is worth more than the residual value at the end of the lease, it might be beneficial for the lessee to buy the vehicle instead of turning it in.

If a lessee buys the vehicle outright at the end of the lease, they could potentially sell the vehicle on their own and pocket the extra money―or even leverage the equity in the vehicle to negotiate a better deal on a new purchase or lease. A lessee that holds equity at the end of their lease has done a good job picking a vehicle that has retained its value well.

If you’re currently in a lease that’s near the end of its term, you should check to see what your vehicle’s residual value is. If your vehicle’s residual is less than its appropriate NADA Used Car Guide trade-in value, it might be a good idea to consider buying it and capitalizing on that equity.

While it’s hard to predict which vehicles you can make money on, your best bet is to stick to brands or models that have historically had strong retention values. Here at NADA Used Car Guide, we consistently stay abreast of vehicle retention scores. In the most recent November and December Perspective reports, average retention scores of some of the newest one-year-old mainstream and luxury models are highlighted.

We’d love to hear your story, check out your vehicles value and let us know if you’re able to leverage that equity and turn it into cash in your pocket.