Breaking your auto lease
By Michelle Warren • Bankrate.com

Ending an auto lease early can be difficult and expensive. But for many, it's not so much a choice as it is a necessity: You're expecting a baby and that sexy two-seater won't accommodate, rising gas prices have forced you to park the SUV, the new job comes with a company car or the new husband comes with a car. The scenarios are endless, but the options are limited.

"People want to get out of leases for all different kinds of reasons," says Jim Matthews, general manager and owner of LeaseBusters, based in Mississauga, Ontario. "Anyone who wants to get out of a financial contract or obligation understands they're not going to get out of it for free."

But if you plan ahead, there are ways to end a lease that are cheaper than others. Read on for tips on how to go about choosing the path of least resistance when it comes to breaking your auto lease.

Another option is a buyout, but this can cost thousands. That's because market value depreciation hits the moment you drive off the lot. So if, for example, your car is worth $35,000 new, the market value likely will be about $28,000. The $7,000 difference is your responsibility when buying out the lease. Returning a leased vehicle can also involve early termination penalties that equal six months' or a year's worth of payments.

A more desperate measure is simply to hand over the keys and walk away. This is the worst thing to do, and it will hurt your credit, says Matthew Hoffman, co-founder and vice-president of operations of the Vancouver-based Leaseboys. "Really, what you're doing is defaulting on your loan." So, you should probably opt for a better solution.

Lease assumption
An increasingly popular route is third-party lease assumption, which involves finding someone to take over the lease.

The relationship is facilitated by a lease transfer or swapping company that connects lessees. For a fee of between $150 and $300, they will promote the vehicle to a network of interested parties registered on their websites and advertise in auto magazines, newspapers or online.

"We are essentially automotive matchmakers -- a dating service for vehicles," says Matthews, who pioneered the service in Canada about 15 years ago.

Most leasing companies have transfer provisions in their contracts, although few actively promote the idea. Still, transfer companies market themselves as a tool for dealers, who quietly refer customers wanting out of their lease.

"If you're in a negative equity situation and you have the option to have someone assume your lease, then that is the better option," says Jeff Dobson of Hallmark Toyota in Orangeville, Ont.

The challenge is lessees can't predict how quickly they'll find a taker. One LeaseBusters user reported finding a match 15 minutes after putting his Jeep online, but Matthews encourages clients to be realistic. "We guarantee that it's going to go, we just don't know when," he says.

On average, a marketable vehicle takes between seven and 90 days, says Hoffman.

Dangling the carrot
Those assuming a lease are motivated by flexibility and money. Third-party lessees get a new vehicle for a shorter term and avoid the upfront costs of a traditional lease. "They can have a two-year lease, based on a four-year price," says Matthews.

Potential lessees are looking for a competitive monthly payment, reasonable mileage allowance, an accident-free vehicle in good repair and, often, bonuses, such as a month or two of free payments.

Some original lessees -- especially if they have trouble unloading the vehicle or want out quickly -- sweeten the deal with cash incentives or dibs on a refundable deposit.

"Rather than paying the dealer $8,000 or $9,000 to subsidize their buyout, they'd rather pay a $3,000 cash incentive," explains Matthews, adding he had one client who offered a $30,000 incentive on a Mercedes. "Sometimes we save people 60, 70, 80, even 90 percent."

The fine print
While the transfer company makes the match, the leasing company must sanction the deal. "The new owner has to be approved through the credit agency," says Dobson.

Fees for processing the credit application and transfer documents vary from $100 to as much as $1,000, with the average being about $350. Note that a small number of companies do not permit third-party takeovers, while others don't allow it within a certain amount of time, such as the first 12 months of a lease. Policies for liability and deposits also vary, so it's best to check with your company for full details.

If there's a deposit involved, some leasing companies will simply retain the first deposit, while others return it and ask for a new deposit from the third-party lessee.

Down payments are also up for debate. If the original lessee put down a large sum, the company may request cash from the new lessee to offset its loss. This works if the monthly payment is low.

As for liability, some leasing companies hold the original lessee responsible should the third party miss a payment. However, if the third-party applicant has a good credit rating -- on par or better than the original lessee -- the companies will often transfer all liability, as well as the responsibility for meeting end-of-lease terms, such as excess wear and tear charges.

Vehicles can be transferred from province to province and, at the end of the contract, are returned to the new lessee's local dealer.

There's no such thing as a "get out of lease free" card. Breaking a lease early can be daunting and expensive, but lessees who understand the options are en route to the path of least resistance.

Michelle Warren is a freelance writer in Toronto.