Get Out of Your Lease the Cheap and Easy Way

Signing a lease contract is a little like getting married: If you suddenly decide you want out, you could get taken to the cleaners. Returning your vehicle to the dealer before the end of the lease contract means you'll pay early termination fees and penalties — nasty ones. Your dealer may suggest you trade in your leased car for a new one, but he will probably add penalties to the price of your new vehicle. Either option will cost you plenty, often thousands of dollars.

So, are you stuck in what may be a bad marriage? Not if you use a lease-trading Web site.

The recently developed business of lease trading, called "lease assumption" in legal jargon, is based on a simple idea: "Sellers" (lease holders) list their cars and payment details; "buyers" (who assume the lease) search for listings that match their needs. The sites connect the two parties and facilitate the process of legally transferring the lease. LeaseTrader.com and Swapalease are the leaders in online lease assumption; they are flourishing as leasing grows in popularity.

Why Would Someone Want My Lease?

If you can't wait to get out of your lease, you may wonder why someone else would want to take it over. There are many reasons:

• A lease allows buyers to get into a late-model vehicle without a hefty down payment.
• It's a short-term car lease — great for executives or grad students.
• Lifestyle changes. (New parents need a larger car; empty nesters need a smaller one.)
• Lease-swappers can drive a different car every year or two.
• The new leaseholder can still buy the car at the end of the contract period if he/she wants.

Even if your current monthly lease payments are higher than average for your vehicle, your car may be an attractive candidate if it has low mileage or if you offer an up-front cash incentive, which can be used to lower the effective monthly payment.

What's the Cost?

Of course, there are some fees to make this transaction happen, but they aren't steep: Prices vary among the sites and leasing companies, who charge a fee to transfer the lease. The bulk of the cost is borne by the person assuming the lease. But it's small potatoes compared to the cost of early termination.

Take for example Keith Begin, of St. Petersburg, Florida. He found his first-choice car with just one day's browsing on LeaseTrader: a 2006 Hummer H3 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 three hours away. Any way he looked at it, 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 2007 Chevy Tahoe when circumstances changed and she suddenly needed to dump it. "I went to CarMax thinking they could solve my problems, and it was outrageous what I would have had to put in: $10,000-15,000 additional to pay off GMAC," she said. Covington discovered LeaseTrader.com and within days, found someone to take over her $550/month 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 of Operations Scot Hall, some 80 percent of leases can be transferred completely with no strings attached. But approximately 10 percent of leasing companies require the original leaseholder to retain some liability for the vehicle even after it is transferred. Nissan/Infiniti and Honda/Acura fall under this category. Whether you can even transfer a lease financed by Honda Financial Services depends on where you live, so check with the company before listing your car or attempting to assume a Honda/Acura lease swap.

Another 10 percent of leasing companies don't permit transfers at all: usually bank-based companies such as Chase Auto Finance and Huntington Bank Leasing, or smaller credit unions. This is an important factor to remember if you decide to lease a new vehicle in the future.

And Now, the Warning Label

Transferring a lease contract is a legal procedure, and like buying a new car, there's no turning back once the ink is dry. Market analyst Lee Scott, a former car salesman, suggests asking the following questions to protect yourself.

If you want to exit your lease:

• Does the person who wants to assume your lease have good credit?
• Does your current lease company allow the transfer?
• Will you be responsible for anything after the transfer?

If you want to assume a lease:

• Have you read and understood a copy of the original lease agreement carefully?
• Will the remaining lease period extend past the vehicle warranty period?
• Have you had the car inspected? You could be held responsible for damage that may have occurred before you assumed the lease.
• Know who you're dealing with. Is it another consumer, or is the person listing the vehicle a dealer?
• Can you lease a new car for a price similar to that of the car you're looking at? It sounds counterintuitive, but with the lease deals offered these days, it is sometimes possible.
• Are there any turn-in or lease-end charges, such as with Mercedes-Benz? (It's $595 unless you lease another Benz.)
• Did you get a vehicle history report on the car you want to lease?

Note that the major online lease-assumption sites will help you with vehicle inspections (for a fee), 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.)

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 on board, according to Serge Stiberman, CEO of LeaseTrader.com. Letting folks transfer their lease makes particularly good sense for Mercedes-Benz and BMW; in 2008, leasing made up a whopping 36 and 56 percent of their respective sales.

"Companies like BMW realize that they can hold on to 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, "You're getting people that wouldn't normally lease a vehicle excited about leasing again."

Lease-assumption sites are still in their early stages, but are growing quickly. John Sternal, vice president of marketing communications for LeaseTrader, says that his site facilitated approximately 35,000 lease swaps in 2007. Swapalease facilitated 6,000 swaps last year, according to Hall. The sites have grown primarily through word of mouth, Internet searches and the media. Ironically, many car dealers aren't aware of these sites, so consider yourself "in the know."

An Automotive "Annulment"?

Online lease trading offers a greater measure of freedom to leaseholders than ever before. 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, the dealer won't necessarily be able to take you for everything you've got.