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 it’s a good deal?
“The problem is it’s really a minefield,” said Michael Saccucci, director of statistics and data science at Consumer Reports. “You have to work out the numbers to be sure you’re getting a good deal.”
What is a lease transfer?
You’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, you’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 you’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 car’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.
Why would you want to take over someone else’s car lease?
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.
The pros of taking over someone else’s car lease
- No down payment
- Possible cash incentives from the original leasee
- Car is most likely still covered by the new-car warranty — check with the manufacturer on how to handle transfers.
- Avoid paying expensive upfront new-car depreciation
No matter what the reason, lease transfer offers can be enticing. Unlike with many new leases, you won’t have to make a down payment, which can save you thousands. That’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 – having to pay for the big loss in value that a new car undergoes during the first year, says Saccucci.
The cons of taking over someone else’s car lease
- May not be available on the car you want
- Transfer fees
- It is difficult to determine whether you’re getting a good deal, which could leave you unknowingly overpaying by thousands.
Not every finance company allows lease transfers, including Chrysler Capital, Honda Financial Services, Hyundai Motor Finance Company and Volvo Car Financial Services. So if you’re looking for a lease transfer for a Volvo XC90, for instance, you’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, there’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 it’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, you’ll have the same responsibilities as the original leasee. For example, if you return the car having driven too many miles, you’ll face an excess mileage fee of 15 to 25 cents a mile or more. You’ll also encounter an excess wear and tear charge if the vehicle has unrepaired damage. And during the lease, you’ll have to pay for maintenance and any repairs not covered by the vehicle warranty. You’ll also be responsible for an end-of-lease disposition fee of usually around $350.
How do you take over someone’s car lease?
If you decide to proceed with a lease transfer, it’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 you’ll actually use them.
Examine lease offers
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 you’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 — 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.
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 vehicle’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 you’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.
You’re now ready to contact a few leasees to find out more about their vehicles and to see whether you can negotiate better deals. To do this on a lease-trading website, you’ll have to pay a registration fee, a one-time fee of $50 to 60 at Swapalease and $10 to $35 monthly at LeaseTrader.
Check out the lease contract and the vehicle. If you decide to go ahead with the transfer, ask the leasee to give you a copy of the original lease contract, and verify that it’s exactly as the leasee represents, including the monthly payment, term and excess mileage charges. Also make sure the vehicle’s condition and features match the advertised description. After checking the car yourself, have it thoroughly inspected by your mechanic and ask for a written report. Expect to pay at least $100 for this service. Finally, check the vehicle for any unresolved safety recalls, which a dealer who sells that make and model new can address for free.
Review the deal carefully. Double check to make sure the lease payments and insurance costs fit into your budget. If you later decide you made a mistake, you may be stuck. Some finance companies won’t allow more than one lease transfer on the same vehicle, says Hall. Once you and the leasee agree on the deal, says Hall, it takes an average of two weeks to complete the transfer.
Alternatives to taking over someone’s car lease
Taking over someone else’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:
- Consider a traditional new-car lease instead — as we mentioned earlier, we found new-car leases that were less expensive per mile than some advertised lease transfers. You could even lease a used car without taking over someone’s lease.
- Or, buy a new or used car that you can afford. We recommend at least a 10% down payment and the shortest loan possible. Here’s why you shouldn’t take out a long auto loan. Another good rule of thumb is that the monthly payment and insurance cost for that vehicle shouldn’t exceed more than 15% to 20% of your monthly net income.
If you think a lease transfer deal is right for you, compare offers carefully. Even then, it’s difficult to determine whether the deal is a good value or you’re overpaying. And it’s important to remember that you’ll be subject to the same limitations as the original leasee, including limits on the number of miles you’re allowed to drive without incurring a penalty.