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Signing a car lease contract is a little like getting married: If you suddenly decide you want out, it could cost you big money in early termination fees and penalties. Your car dealer may try to soften the blow by suggesting you trade in your leased car for a new one. But even that could involve adding penalties to the cost of your new vehicle.
So, are you stuck in what may be a bad car-driver marriage? There is some possibility that you have equity in your leased vehicle and you can get out early and even pocket some money. Your other option is to use a lease-trading Web site.
The concept of these businesses is simple: "Sellers" (lease holders) list their cars and payment details online; "buyers" (people who want to assume a lease) search for listings that match their needs. The sites connect the two parties and facilitate the process of legally transferring the lease. Swapalease and LeaseTrader.com are the leaders in online lease assumption.
Why Would Someone Want My Car Lease?
There are many reasons your current leased car might be attractive to other people:
- They might need a car for just a short time period and don't want the commitment of a longer lease term.
- They might be trying to avoid hefty down payments .
- A life situation has changed and the shopper needs an extra car or a different type of vehicle.
- Some people like lease swapping because they can drive a different car every year or two.
- A new leaseholder might want to buy the car at the end of the lease for a preset price.
Even if your current monthly lease payments are higher than average for your vehicle, you can make your car an attractive candidate for a new owner. Perhaps the car has low mileage or you can sweeten the deal by offering an up-front cash incentive, which lowers the monthly payment.
What's the Cost?
Of course, these lease sites charge a fee. Additionally, leasing companies charge a range of fees for the lease transfer. The person assuming the lease bears the bulk of the costs. Despite these expenses, the total cost is much less than early termination penalties.
Take for example Keith Begin of St. Petersburg. Florida. On LeaseTrader, he found a large SUV with 19,000 miles and 19 months left on the lease for only $322 per month. It cost him a total of about $750 to assume ownership of the car, which was located just three hours away. He felt it was a great deal.
"Somebody else had to put down the $2,000-$3,000 [in down payment]," Begin said, "and my commitment was a lot less than it would have been if I'd gone through a dealer."
Sharon Covington of Long Beach. California, was only five months into a three-year lease on a Chevy Tahoe when her circumstances suddenly changed and she needed to get out of her lease. She tried to trade in the vehicle.
"It was outrageous what I would have had to pay: $10,000-15,000 just to pay off the lease," she said. Covington discovered LeaseTrader.com and within days, found someone to take over her $550 monthly payments. The whole transaction cost her $250.
"It was completely seamless for me," she said. "I was shocked beyond belief."
Can Everyone Swap Leases?
According to Swapalease's executive vice president, Scot Hall, it is possible to transfer about 80 percent of leases with no strings attached. But even after a person transfers the lease, approximately 20 percent of leasing companies require the original leaseholder to retain some "post-transfer liability " for the vehicle, said Hall. This means that the name of the person who originated the lease remains on the contract and the original lease holder can be held financially responsible for unpaid balances. These could result from excess mileage charges or lease-end fees.
The person who signed the original lease is essentially a co-signer on a loan, Hall noted. If the second person defaults, the bank
will try to recover the money from anyone else named on the contract.
Nissan. Infiniti and BMW are manufacturers that require post-transfer liability, Hall said. Acura and Honda sometimes require it depending on the state in which you live. However, Hall said that the trend in the secondary leasing market is moving away from post-transfer liability.
A small percentage of leasing companies don't permit transfers at all. These are usually banks such as Chase Auto Finance and Huntington Bank Leasing, or credit unions. Before signing a new lease, consider this important factor. If your leasing company allows transfers, you will have more flexibility if you need to end the lease early.
Checklist for Lease Transfers
Lease-assumption sites will help you with many aspects of the lease transfer, such as vehicle inspections, vehicle history reports, links to long-distance auto shippers and credit qualification. (LeaseTrader prequalifies all potential buyers; Swapalease checks buyers' credit after they reach an agreement with a leaseholder.)
However, transferring a lease contract is a legal procedure, and as with buying a new car, there's no turning back once the ink is dry. So it's important to personally check the main requirements of the lease.
Market analyst Lee Scott, a former car salesman, suggests asking the following questions to protect yourself if you want to transfer your lease:
- Does your current lease company allow transfers?
- Has the lease trading company checked to make sure the person who wants to assume the lease has good credit?
- Are you willing to retain some responsibility after the transfer?
Checklist for Lease Assumptions
If you are interested in assuming someone else's lease, Scott suggests you ask yourself these questions:
- Have you carefully read and understood the original lease agreement?
- Will the remaining lease period extend past the vehicle warranty period and leave you out of warranty?
- Can you easily get the car inspected by a mechanic? Lease-trading companies will do this for an extra fee or provide a mobile inspector if it is out of your area. And it's a good idea to check the car out: The leasing company could hold you responsible for damage — even if it occurred before you assumed the lease.
- Does the car you are interested in belong to another consumer or a dealer? The lease trading company will be able to tell you this. It's important to know who you're dealing with.
- Can you lease a new car for the same price as the car you're considering on a lease trading site? With the lease deals offered these days, it is sometimes possible to get a better deal with a new car.
- Have you read the original contract to find out if you will be held responsible for costly lease-end charges? For example, Mercedes-Benz charges a $595 turn-in fee unless you lease another Mercedes.
- Does the vehicle history report on the car you want to lease list any accidents or major repairs?
A Win-Win for Consumers, Automakers
While automakers' finance companies were initially resistant to the idea of their customers' leases changing hands, they've now come onboard, according to Sergio Stiberman, CEO of LeaseTrader.com. Letting folks transfer their leases makes particularly good sense for high-end carmakers such as Mercedes-Benz and BMW, which lease out a high percentage of their new cars.
"Companies like BMW realize that they can hold onto these customers by letting people get out of their lease," said Stiberman. "They get a brand-new customer, and they've created a new relationship with the older customer." As a result, Stiberman said, "You're getting people that wouldn't normally lease a vehicle excited about leasing again."
An Automotive "Annulment"
Online car lease trading offers a greater measure of freedom to leaseholders than they've had in the past. And if you're deciding whether to lease or buy, a lease contract that permits vehicle transfers acts a bit like an automotive prenup. It's easier to take the plunge knowing that, if you want out, it doesn't have to be a painful parting.