Escaping a Car Lease gets easier
By Amy Buttell Crane • Bankrate.com
The following story was also posted online at www.leasetrader.com.
For years, leasing a car put you at risk of a major downside -- being stuck with a vehicle you no longer wanted with no way out. Car dealers charged a hefty penalty if you tried to break the lease.
Now there's a way to overcome that obstacle.
The dealers haven't stopped imposing those penalties, but middlemen who facilitate lease trading among consumers are reshaping the car leasing market by matching Car Lease sellers with buyers.
For a fee, these lease-trading companies act as online matchmaking services for both sides of the lease-trading transaction. Once a deal is struck, the lease-trading company facilitates the transfer of the lease and title with the car dealer.
The lease-trading market is appealing to sellers looking to dump leases for whatever reason: the desire for other models, financial setbacks or overseas moves. For buyers, there are some great short-term deals available from sellers looking to avoid those hefty dealer penalties.
"Car leases are extremely hard and costly to break, so these sites were created to give sellers an out," says Philip Reed, senior consumer advice editor with Edmunds.com. "For buyers, these sites help them negotiate the complex legalities involved in assuming a lease. It's a situation where everyone involved benefits."
How it works
If you're interested in trading leases, you can work through an established lease-trading company such as LeaseTrader.com or Swapalease.com, or go it on your own through sites such as Craigslist or eBay. When working through a lease-trading company, both buyers and sellers pay a fee during certain points in the transaction.
The lease-trading companies vary in their fee structures. For those interested in assuming a lease (the buyers), Swapalease charges initial fees ranging from $39.95 to $79.95, while LeaseTrader.com charges range from $29.95 to $129.95. LeaseTrader.com also charges the buyer and the seller a $149.95 transfer fee. For sellers who work with Swapalease, there is a $45.95 initial listing fee and a $95 "success" fee when an agreement is reached between the buyer and seller regarding a lease transfer. If the agreement should fall through, Swapalease will credit the seller with the $95 toward a future lease transfer transaction.
Individual car companies and banks charge transfer fees in addition to those charged by the lease-trading companies. A list of fees those fees can be found on the Swapalease site. These fees vary but could be $45 for a lease transfer for Toyota, $595 for General Motors Acceptance Corp., $250 for Wells Fargo Bank and $75 for Ford. Some car companies and banks also charge a credit application fee.
In most cases, these fees are far less than those charged by car dealers and leasing companies to get out of a lease. If you terminate a lease early, most leasing companies -- who work through car dealers -- will require you to pay the rest of what you owe on the lease, plus early termination fees, or force you to purchase the vehicle. Generally, lease contracts treat all early terminations the same way, regardless of the reason for the termination, including the death of the leaseholder, a job loss or a move to a foreign country.
You must also register a car in your locality, which usually involves a fee. For information on fees in various states, check out Swapalease.com. If you're interested in buying a lease from a seller who is some distance from you, there will be transportation charges involved, which buyers and sellers typically negotiate. You may also want to pay for a mechanical inspection, which typically runs at least $100.
While many individual leaseholders seeking to dump their leases post ads on lease trading and other sites, car companies and dealers also list leases. You can find almost any model and make available for lease buying. Terms range from as short as five months to as long as five years. Because consumers leasing cars generally prefer loaded models, most leased vehicles available for trade have desirable options.
Buyers need good credit
Buyers need to be prequalified, so they will pay a fee for a credit check. Would-be buyers without good credit are usually out of luck. In most cases, consumers who are prequalified through the lease-trading companies are qualified by the car companies to assume a lease, but in some deals, that isn't the case.
"As we've worked with a lot of different leasing companies, we've learned what they look for, so we put together a process that will get most buyers with good credit approved," says Sergio Stiberman, CEO and founder of Leasetrader.com.
"But because it is harder to get approved to lease a vehicle than buy one, in some cases preapproved buyers aren't ultimately approved by the leasing company," he says.
The trading process
Lease-trading Web sites list thousands of cars available for lease sales. Interested buyers can approach interested sellers and then both parties are free to work out deals on their own. Motivated sellers may sweeten deals -- especially if they have cars with high payments or high mileage or they have unpopular brands -- by paying lease-transfer fees that are usually assumed by the buyers, paying to transport cars to the buyers' locations, making cash payments for the buyers to take over the leases or paying a couple of months of lease payments for the buyers.
Once the buyer and seller come to an agreement about the terms, the lease-trading site -- if one is involved -- handles the paperwork, which includes getting the buyer approved by the leasing company and transferring the lease from the seller to the buyer. The parties need to work out details such as transferring the car from seller to buyer.
Ken Greenburg of Encino, Calif. has traded leases twice.
"I actually started out using the lease-trading sites, but then ended up doing the transactions on my own, once through Craigslist," he says. "In the case of the BMW 336i that I wanted to get out of, BMW of North America makes it very easy to transfer the lease. I filled out the paperwork and the buyer took over the lease."
Before trading into the lease he ultimately wanted -- a BMW 335i -- he leased a Porsche Cayenne for three months, then traded out of that lease.
"What the lease-trading sites have done is to show you what cars are available in different regions and that lease trading is an option," he says. "They also have good information on their sites, so whether you end up doing a lease trade through them or not they are an invaluable starting place."
Before completing a deal to buy a lease, make sure the car you're getting is the car you're expecting to get, says Reed.
"Remember that lease-traded cars aren't new cars. Don't go into this thinking that you are getting a new car," he says. "Shop around and compare what kind of deal you could get for the same model new. Think about whether you can really afford the payment and how far you might have to travel to get the car you want," says Reed.
Leasing a car for a short period, such as six months, can be a good way to try out a brand of car that you might be interested in buying or leasing in the future. Short-term leases can also be a good solution for people who are relocated to jobs in another parts of the country for short periods of time.
Legal issues
While Car Lease companies and dealers were initially suspicious of lease trading, most are more comfortable with the transaction now and are willing to facilitate leases between sellers and qualified buyers. However, some dealers -- including Audi and Nissan, according to Stiberman -- still insist that the original lessor retain some liability for the lease car even after it is transferred to someone else.
That means if the new lease owner doesn't make payments or damages the car in some way, you, as the original lessor, will be liable.
"This is a deterrent for would-be buyers of these types of leases," he says. "We tell sellers and buyers of these models upfront what the issue is. Most sellers of these brands don't want to have any liability in the future, so they won't go forward with listing their vehicles."
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This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com.
Print | posted on Tuesday, November 27, 2007 5:45 PM