Selecting a new vehicle includes numerous important decisions. One of the most important is whether to lease. Leasing has many advantages, especially lower monthly payments than if you bought the vehicle, and a shorter time with that vehicle if your lifestyle or vehicle needs change every few years.
Most people are familiar with leasing a new vehicle, but shoppers also have the option of taking over someone else's lease.
Here we'll look at the basics of a lease takeover.
A lease transfer, also known as a lease assumption or lease swap, differs in several ways from a new lease. In simple terms, a lease transfer refers to when an original lessee transfers a leased vehicle contract to a new lessee. The new lessee gains use of the car and takes over the payments. They are also bound by the responsibilities of the agreement, including maintenance and mileage limits.
Once the transfer is complete, the original lessee is generally released from any payments or obligations related to the lease. However, in some instances, the original lessee retains some liability.
Most banks, dealers, and other leasing companies charge transfer fees to allow a lease swap. These costs are usually stated in the original lessee's contract.
When a lease is transferred, the new lessee gains use of the vehicle for the remainder of the original lease term. If the transfer occurs in mid-year, the miles driven by the initial lessee are combined with those driven by the new lessee.
Pros and Cons of Lease Transfers
As with any car purchase or lease, a person considering lease swapping must consider many pros and cons. The balance of these drawbacks and benefits determines whether a lease takeover is a good deal or not.
One of the primary pros of taking over a lease is the chance for a short-term lease. Because the original lessee completed a portion of the contract, the new lessee has a shorter term to complete. That is valuable for people that want to try out a type of car before purchasing one, for those who like to switch out cars frequently, or for those shoppers whose vehicle needs change quickly.
Another pro is that the transfer fees a new lessee pays can be less than the down payment the original lessee paid. Original lessees also sometimes offer cash incentives to help attract a new lessee.
Addition reasons in the 'pro' column also applies to leases in general. These include a lower upfront cost than purchasing a vehicle, potentially lower monthly payments, and the flexibility to drive a new vehicle every few years without the hassle of buying and selling.
Negatives associated with taking over a lease include negatives related to leasing in general. That consists of a higher long-term cost than purchasing a car, particularly if you are leasing a new car every two or three years.
Additionally, with leasing, you never own a vehicle and thus do not acquire any equity in a car. Lease owners are also bound by stricter terms than drivers with a car loan.
There are also several cons explicitly associated with taking over a lease. These includes a low mileage limit if taking over mid-year from an original lessee that drives a lot.
New lessees also need to check the accident and maintenance history of a vehicle before taking over a lease.
In addition to a background check on the vehicle, new lessees should take the vehicle for a test drive and have it checked by a mechanic. Any dings, scratches or mechanical issues beyond typical wear and tear are the responsibility of the lessee. A potential risk for taking over a lease is being stuck with the cost of damage done by the original lessee.
Why People Transfer Leases
Lease transfers can be originated by agreement with the original lessee, or through the leasing company. Companies generally seek new lessees to take over leases where the original lessee has defaulted on payments or can no longer afford the payments. In some cases, companies offer lease deals to attract new lessees.
Original lessees may want to transfer a lease for various reasons. They may struggle to make the payments due to a change in circumstances. They may simply tire of the vehicle they leased before the end of the term or may have had a change in the type of vehicle they need. For example, a family may need extra space after welcoming a new child and seek to transfer their lease on a smaller car before buying or leasing an SUV.
How People Transfer Leases
People looking to assume a lease can connect with lessees that want to transfer their leases in a variety of ways.
Several reputable transfer websites exist that streamline the process.
Additionally, many leasing companies and dealerships can connect original and new lessees.
Original lessees can also post transfer opportunities on online classified ads, such as Craigslist.
As you probably know, leasing a car differs from buying a vehicle with a loan or cash. While both typically include a down payment and monthly payments, the person leasing a car (the lessee) does not gain equity in that vehicle with each payment and they don't earn ownership of the car at the end of the lease term. Instead, at the end of the lease term, the vehicle is returned to the leasing company or dealership (though most lessees have the option to buy the vehicle at that time).
While leases for new cars are more common, some used cars can also be leased.
As with financing a vehicle, auto leases require a credit check and a signed contract, or lease contract, that governs the terms of the lease. Typical lease terms include the length of the lease, the amount of the down payment and the monthly payment amount. Most contracts are for between one and three years.
Leases also include terms that govern the wear and tear of the vehicle. Under these terms, the lessee is responsible for any damage or excess wear to the vehicle. The lessee is also required to perform essential maintenance, such as oil changes, for the vehicle. Depending on the terms of the agreement, the costs of maintenance may be at the driver's expense or be covered by the monthly payment. Often maintenance must be performed at the leasing dealership or a specified maintenance shop.
Excess wear includes driving more miles during the lease term than allowed by the mileage limits in the contract. Most leases allow lessees to drive up to between 10,000 and 15,000 miles per year. Lessees can pay a higher payment for more allowable miles. Alternately, they can pay a penalty fee for any miles driven over the limit.
The amount of the monthly lease payments are determined by the value of the car and the amount the leased car will depreciate during the lease term. Depreciation is the amount the vehicle decreases in value due to wear and tear. The depreciated amount is also the amount the bank or leasing company expects to sell the vehicle for after the lease is over.
In addition to covering the depreciation cost, a monthly lease payment includes taxes and fees. The lessee's credit score and the amount of the down payment can affect the amount of the monthly payment.
A lease transfer occurs when a new lessee takes over a lease from an original lessee. The new lessee assumes the monthly payments and the responsibilities, such as routine maintenance and mileage limits, for the remainder of the lease term.
The original lessee is released from all or most liability once the transfer is complete. Most leasing companies, banks, and dealerships charge a transfer fee to both the new and original lessees. A lease transfer is also called a lease assumption or lease swap.