Can Everyone Swap Leases?
According to 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. This means that the name of the person who originated the lease remains on the contract and the original leaseholder can be held financially responsible for unpaid balances. Such a liability could result from excess mileage charges or lease-end fees.
In these cases, the person who signed the original lease is essentially a co-signer on a loan, Hall said. If the second person defaults, the bank will try to recover the money from anyone else named on the contract.
The easiest way to see if your lease can be transferred is by reading the disclosures on your lease agreement. "Transfer of equity" is contract jargon that essentially says you'll still be financially responsible if you transfer a lease to somebody and the new lessor fails to pay. If your lease allows for a "full lease assumption," you can transfer your lease to a new user and wash your hands of all responsibility.
A small percentage of leasing companies don't permit transfers at all. If you think you might want to transfer your lease down the line, find out if the bank that's handling your lease will allow you to do so.
Help With Transfers
Lease-trading 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. (As a rule, the person looking to assume the lease will need to have pretty good credit.)
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 check the main requirements of the lease.
Checklist for Lease Assumptions
If you're thinking about transferring your own lease, these are some questions to consider before you do:
- Does your current lease company allow transfers?
- Has the lease-trading company checked to make sure the person who wants to assume the lease will qualify?
- Are you willing to retain some responsibility after the transfer?
If you are interested in assuming someone else's lease, we suggest you ask yourself these questions:
- Have you carefully read and understood the original lease agreement, including all potential fees and charges?
- Will the remaining lease period extend past the vehicle warranty period and leave the vehicle out of warranty? And if so, are you OK with that?
- 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 the car is out of your area. It is a good idea to check out the car. The leasing company could hold you responsible for damage, even if it occurred before you assumed the lease.
- 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.
A Win for Consumers and 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 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," Stiberman said. "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 who wouldn't normally lease a vehicle excited about leasing again."
An Automotive Annulment
Signing a car lease contract can feel a little like getting married: If you suddenly decide you want out, there is a fear it could cost you big money in early termination fees and penalties.
If the car you're leasing doesn't have equity and you can't pull off the leasing switch our colleague was able to, online lease trading can be a good option. It offers a greater measure of freedom to leaseholders than they've had in the past. A lease contract that permits vehicle transfers is a bit like an automotive prenup. It's easier to take the leasing plunge knowing that if you want out, it doesn't have to be a painful parting.