Is it Possible to Have Equity in a Car Lease?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - October 24, 2019

Unless you choose to buy the car at the end of a lease, you don’t own it or get the benefits of any equity. Although it’s very rare for a leased vehicle to have equity, it could happen. Curious as to how and why? Keep reading to find out.

How Equity and Lease Payments Are Calculated

A lease payment is based on two factors: (1) the money factor, which is what the interest rate is called in a lease, and (2) the amount of depreciation, which is the difference between the capitalized cost and the residual value that is determined by the leasing company at the start of the lease.

When you lease, you only pay for your use of the car. Because of this, monthly lease payments are generally lower than financing payments – you’re only paying for the portion of a vehicle’s value during the time you use it, instead of paying for the entire car.

Unfortunately, this means that the chances of there being equity at the end of the lease term are rare. However, if the lessor miscalculates, or the vehicle’s actual depreciation is less due to unforeseen circumstances, the car’s actual cash value (ACV) could end up being higher than the residual value they estimated. This is how a leased vehicle could have equity at lease end.

The only way to know if there’s equity involved in your situation is to have the car appraised by a dealer. Compare the ACV to the residual value; if the ACV is higher, you have equity and you could buy the vehicle for its residual value and either keep it or sell it.

Is it Possible to Lease a Car with Bad Credit?

If you’re reading this and wondering if you can even lease a car with bad credit, the answer isn’t so simple. It’s not impossible to get approved to lease with bad credit, but it’s uncommon. Leases are set by tiers – the higher your credit score, the higher the tier you qualify for. If your credit score is too low for the lowest tier, you aren’t going to qualify.

However, if you do qualify for a lower lease tier, you can expect these two things:

  • Your interest rate (or money factor) is going to be higher than average to offset the risk of bad credit. This increases the monthly payment, but you can lower it by making a down payment.
  • It’s possible that a lessor is going to require you to make one, or even multiple, security deposits. Security deposits aren’t the same as down payments. You pay them up front in addition to the first month’s payment, and you get the money back at the end of the lease as long as you don’t go over the mileage limit and the vehicle has no major wear and tear.

One last thing to keep in mind: like financing, you’re probably going to need to bring in proof of income, residence, and phone in order to qualify to lease with bad credit.

Considering Leasing?

If you’re interesting in leasing your next car, you can check out the best lease deals here. After that, you can research new vehicles right on our website to see which ones you may want to lease.

If you think that financing is a better option for you and your credit situation, we can assist with that as well. At CarsDirect, we're teamed up with a network of special finance dealerships all across the country that help people with bad credit get the auto loans they need.

To be matched with a dealer near you, simply fill out our easy and free car loan request form today!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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