If you are in the market for a new set of wheels to get around in, you will need to consider several important factors before making a final decision. One crucial factor to consider is whether you want to purchase or finance a new car or lease one.
If you decide on the option of a car lease, then there is another question that needs consideration. Do you want to take on a new lease contract, or is taking over a car lease from someone else an option? Taking over someone else's car lease is a great way to "test drive" your dream car or arrange a vehicle that you only need for a short while. This article explores the basics of a lease takeover and what you need to know before considering this route.
Car Lease Basics
Leasing a car differs from receiving an auto loan for the purchase of a vehicle. Both typically include a down payment and monthly payments. However, the person leasing the car, the lessee, does not earn ownership of the vehicle at the end of the lease term. Instead, the vehicle is returned to the leasing company or dealership. While an auto loan means you will own an asset at the end of the loan term, it does involve higher monthly costs than if you were to lease the vehicle.
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 application and a signed contract or lease agreement that governs the lease terms. Typical lease terms include the length of the lease, the amount of the down payment, and the monthly payment amount. Most contracts average between 24 to 36 months.
Cost is always the bottom line when it comes down to determining the value of a car lease.
There are several factors that will affect the cost of your car lease, namely:
- The manufacturer's suggested retail price or MSRP
- The capitalized cost or Cap Cost
- Residual Value
- Money factor or lease rate (basically, the interest rate)
- Mileage allowance and charges
- The lease term
- Purchase option agreement
- Upfront fees
- Penalties and additional charges
Let's break down some of these factors a little further to understand the basics of a car lease better.
Leases 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 car. Depending on the terms of the agreement, maintenance costs may be at the driver's expense or 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, known as the mileage allowance. Most leases allow lessees to drive between 10,000 and 15,000 miles per year. Lessees can pay a higher payment for a higher mileage allowance. Alternately, they can pay a penalty fee for any miles driven over the limit.
The amount of the monthly lease payments is determined by the car's value 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.
Car 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 of the existing lease. 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 may retain some liability.
Most banks, dealers, and other leasing companies charge transfer fees to allow a lease swap. The amount of the costs should be stated in the original lessee's lease contract.
When a lease is transferred, the new lessee uses the vehicle for the remainder of the original lease term. If the transfer occurs mid-year, the miles driven by the initial lessee are combined with those driven by the new lessee.
Before taking over a car lease, you should always consider the following important factors:
- Vehicle condition
- Costs of lease transfers
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.
Pros and Cons of Lease Transfers
As with any vehicle purchase or lease, a person considering taking over a car lease must consider the pros and cons of the transaction. This will help you determine whether a lease takeover is a good deal for you or not.
The Pros of a Car Lease Takeover
Lower Payments: A car lease takeover allows you to drive a new vehicle that you may not have otherwise been able to afford. A lower pricing model places you in reach of your dream wheels instead of the higher monthly repayments on an auto loan.
Potential Good Deals: Many lessees looking to sell their original lease agreement may need to get rid of the contract as soon as possible, especially if it is for financial reasons. This means that some sellers may offer perks, such as a cash incentive, or they may offer to pay for the transfer fees.
Short-Term Lease: Typically, an auto lease lasts between two and four years, so a lease takeover may mean the commitment is short-term since you only take over the balance of the agreement. This allows you to get out of a car without the complications of a long-term lease agreement.
Lower Mileage: Mileage restrictions accompany an auto lease. Because of this, you will generally get a car with fewer miles on it than the same version of a used car.
The Cons of a Car Lease Takeover
Limited Savings: The lease may have a shorter period compared to that of a new lease; however, you will typically take on the same costs as you would with a new lease.
Potentially Higher Costs: If you do not take the time to carefully inspect the car you want to lease, you may be liable for any damages caused by the vehicle's previous owner.
Costs of Sales Tax: These costs can be potentially very high - depending on your state's laws and how sales tax is calculated in your state.
You May Pay More Fees: If you take over a lease, you may have to pay additional fees, including lease transfer fees, credit application fee, and disposition fee.
Hard-To-Find Low-Mileage Swaps: With mileage limits tight on leased cars, you may have some trouble finding a car with lots of miles available on the lease takeover.
Warranty: When taking over a car lease, you may not benefit from the vehicle's original warranty; it may have fallen away already or expired. If someone leased a brand new car and started a new lease on it, they would benefit from the auto maker's warranty.
How People Transfer Leases
People looking to assume a lease can connect with lessees who want to transfer their leases in various ways.
Several reputable transfer websites exist that streamline the process, including:
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.
Car Lease Deals
Now that you have a better understanding of how a car lease works and the concept of taking over a car lease, let's end with a little push in the right direction of the best car lease deals to look at in 2021 and what you could potentially pay if you signed a new lease:
- 2021 Mazda 3: Between $179 and $203 per month over 36 months for the base model. Upfront fees: +- $2,500.
- 2021 Honda HR-V: Roughly $159 per month with a $2,700 down payment for the base model.
- 2021 Nissan Leaf: Between $181 and $239 per month over 36 months with $199 due when signing the new lease.
- 2021 Lexus ES: Between $329 and $349 per month over 36 months with a $3,999 down payment.
- 2021 Toyota Corolla Hybrid: Between $129 and $209 per month over 36 months with a down payment of $2,999.
- 2021 Porsche Macan: Roughly $699 per month over 36 months with a $4,039 down payment.
- 2021 Kia Forte: Between $159 and $169 per month over 24 or 36 months with a $2,099 down payment.
- 2021 Volkswagen Tiguan: Between $199 and $259 per month over 39 months with a $3,199 down payment.
Should you do a car lease takeover on one of the models above in a few months, you can expect to pay the same monthly fee.