Leasing has become popular because it allows people to drive a car they otherwise might not be able to afford. Leasing accounts for about 29% of all new car transactions, according to Experian. But what about taking over a lease someone no longer wants? Does it ever make sense? And if so, how can you judge whether itâ€™s a good deal?
â€śThe problem is itâ€™s really a minefield,â€ť said Michael Saccucci, director of statistics and data science at Consumer Reports. â€śYou have to work out the numbers to be sure youâ€™re getting a good deal.â€ť
Youâ€™ll find thousands of lease transfer offers on such websites as LeaseTrader and Swapalease. The idea is for you to take over the lease with the same monthly payment for the remainder of the original lease term, which usually is three years.
With a lease transfer, just like with a new car lease, youâ€™re not buying the vehicle but instead paying for the right to drive it for a certain amount of time and number of miles. Usually youâ€™re restricted to an average of 800 to 1,000 miles a month, although that can vary with a lease transfer, depending on how much the original leasee used the car before you got it. The monthly payments are based on the carâ€™s projected loss in value during the lease term, the so-called depreciation, along with an interest rate. At the end of the lease, you must return the vehicle or purchase it at a predetermined price.
Someone might want to get out of their lease if they no longer can afford the monthly payments or if they need to dispose of a vehicle that was being leased by a family member who has passed away.
No matter what the reason, lease transfer offers can be enticing. Unlike with many new leases, you wonâ€™t have to make a down payment, which can save you thousands. Thatâ€™s because the original leasee already has shelled out that upfront cash, along with the usual lease acquisition fee, which can be as much as $1,000. So in most cases, you can take over a lease with very little out of pocket, says Scot Hall, executive vice president of operations for Swapalease.
Beyond that, many leasees offer incentives, sometimes totaling $1,000 or more, to encourage you to take over their lease, which can turn a bad deal into a good one. And depending on how good that deal is, a lease transfer might even help you avoid a costly problem that comes with leasing a new vehicle â€“ having to pay for the big loss in value that a new car undergoes during the first year, says Saccucci.
Not every finance company allows lease transfers, including Chrysler Capital, Honda Financial Services, Hyundai Motor Finance Company and Volvo Car Financial Services. So if youâ€™re looking for a lease transfer for a Volvo XC90, for instance, youâ€™ll be out of luck unless the original lease was issued by a bank or other independent finance company, which is becoming increasingly uncommon, says Hall.
Even if you can take over a lease, thereâ€™s often a transfer fee that can be as high as $600. You also may have to pay a separate fee of up to $100 or so for a credit check, which will be for nothing if the finance company rejects the transfer. To avoid that, Hall says itâ€™s best to have a credit rating of at least 680 before applying. And for a small percentage of lease transfer offers, such as those for cars that have been driven an unusually low number of miles, leasees want an upfront payment, which run into the thousands.
If you go ahead with a transfer, youâ€™ll have the same responsibilities as the original leasee. For example, if you return the car having driven too many miles, youâ€™ll face an excess mileage fee of 15 to 25 cents a mile or more. Youâ€™ll also encounter an excess wear and tear charge if the vehicle has unrepaired damage. And during the lease, youâ€™ll have to pay for maintenance and any repairs not covered by the vehicle warranty. Youâ€™ll also be responsible for an end-of-lease disposition fee of usually around $350.
If you decide to proceed with a lease transfer, itâ€™s best to take a close look at the vehicle itself as well as the terms of the original lease. If you take over a lease, you could wind up paying some of the expensive new-car depreciation that occurred while the original leasee had the vehicle, says Al Hearn, founder and president of LeaseGuide.com.
On the other hand, the transfer could be attractive if the original leasee put a significant amount down, negotiated a great on the vehicle or a combination of both, says Saccucci. The deal also could be worth considering if the leasee is offering a large cash incentive or drove the vehicle only a small number of miles. The more miles left on the lease, the more valuable it is to you, assuming youâ€™ll actually use them.
Unless you know someone who wants to jettison an existing lease, start by visiting websites such as LeaseTrader and Swapalease and look for ads featuring make and model vehicles youâ€™d like to lease. You could also check classifieds on Craigslist or in your local newspaper. Make sure the advertised monthly payments will fit into your budget. Remember to account for the cost of insurance â€” the leasing company will most likely insist that you maintain comprehensive coverage, which is more expensive than basic liability insurance. Decide how long you want to lease and how many miles you plan to drive. Then focus on vehicles that roughly meet that criteria.
TIP: If you take over a lease with too few miles, you could end up owing excess mileage charges when you return the vehicle. Too many miles and you may end up paying for more depreciation than youâ€™ll actually use.
Try sticking to cars that are close to home. That makes it easier to check out the vehicle in person and avoids having to ship or drive the car a long distance once the transfer is complete. About 70% of Swapalease transfers involve cars that are within a two-hour, round-trip drive, says Hall.
Check the details. Along with the term and number of miles, find out whether the leasee is offering any incentives to encourage you to take over the lease or, in those rare cases, wants to you to make an upfront payment to him or her. Check the description of the vehicleâ€™s condition, and review the photos carefully. Note which finance company issued the original lease and check its rules for transfers, including any fees. Eventually, you should verify this with the finance company directly.
Compare offers. Once youâ€™ve narrowed your choices, compare offers to find out which ones are the best value. Because the number of miles and other terms will differ, the best way to do this by comparing per mile costs. To calculate this for each vehicle, take the total cost of the payments plus any fees or other charges, subtract any incentives and then divide that by the number of miles left on the lease.
By comparing costs for six similar 2018 Toyota Camry lease transfer offers, we came up costs ranging from 20 cents to 43 cents a mile. Some of the per mile costs were higher than those of leasing a brand-new Camry, which underscores why you need to do your homework.
Taking over someone elseâ€™s lease might make sense, especially if you need a car for only a relatively short period. But there are other ways to get the same or better deal:
If you think a lease transfer deal is right for you, compare offers carefully. Even then, itâ€™s difficult to determine whether the deal is a good value or youâ€™re overpaying. And itâ€™s important to remember that youâ€™ll be subject to the same limitations as the original leasee, including limits on the number of miles youâ€™re allowed to drive without incurring a penalty.
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