The pros and cons of assuming a car lease
If you're in the market for a car, you may be weighing your options between buying and leasing a new or used car. Depending on your circumstances, you may also want to consider assuming someone else's car lease.
Car leases typically last for two to four years. Lessees may decide they want to end the lease early because they no longer like the car, they can't afford the payments or they experience a life change such as an addition to the family, says Philip Reed, senior consumer advice editor for Edmunds.com.
If you decide to assume a lease, you'll be responsible for the rest of the payments on the car. Lessees who want to hand over their leases turn to websites such as SwapALease, LeaseTrader and LeaseCompare to find someone to fill that role.
"We're like a dating service for car leases," says Scot Hall, executive vice president of SwapALease.com in Cincinnati. "We facilitate the process of transferring your lease to someone else."
Benefits of a lease assumption
For buyers, assuming a car lease can be a good deal, although it's not without hazards.
"One of the main reasons to assume a lease is that you'll find better availability of a specific vehicle," says Alec Gutierrez, senior market analyst of automotive insight for Kelley Blue Book in Irvine, Calif. "Most car buyers keep a car for three to five years or longer, and most leases last two to four years. If you're looking for a 2-year-old car, you won't find very many on a used-car lot, but you might find the one you want as a lease takeover."
Hall says the most common reason for people to assume a lease is they want a car for a short time. Some drivers look at a lease assumption as an "18-month test drive" while they decide if they want to own a particular car, Hall says.
"The lease assumptions we have on our site average 18 to 22 months," Hall says. "You cannot duplicate a short-term lease like that with a leasing company."
Reed says assuming a lease is an option for a consumer who doesn't want to a buy a car. "Someone who has a temporary assignment for 18 months to two years may not want to buy a car, so a lease assumption can be a good compromise," he says.
Lease sellers are often in a difficult situation and will offer incentives to someone willing to take over a lease, Reed says. "Not only are you getting a low lease payment, but they'll often throw some cash in the pot to sweeten the deal."
Hall says 43 percent of the lease offers on SwapALease.com offer a cash incentive.
In addition, lease payments are typically lower than purchase payments because you aren't building equity in the car. Generally, the longer the lease term, the lower the monthly payments. The payments could be even lower if the original lessee traded in a car or made a down payment at the beginning of the lease.
While a lease takeover doesn't require a down payment, there are some transfer costs for the lease. However, you can negotiate to have the seller pay these fees.
Disadvantages of a lease assumption
Low car payments and the flexibility of a short-term lease may be tempting, but before you assume a lease, you need to be aware of the potential pitfalls.
"Most leases are limited to 12,000 miles per year and charge a fee of 15 cents for every mile over the limit when you return the car," Reed says. "If you are taking over a lease after two years, then you should make sure the car doesn't have more than 24,000 miles on the odometer."
Hall says you should estimate how many miles you'll drive before the lease ends to make sure you won't have to pay a penalty. Alternatively, you can negotiate a cash incentive to take over a lease that has excessive mileage.
Leased automobiles must be turned in at the end of the lease in good condition with normal wear and tear.
"Although any mechanical issues of a leased car are usually covered under a warranty, you should have a trusted mechanic check out the car before you take over the lease to make sure the car is in good condition," Gutierrez says.
Reed says you should check the car for body or paint damage because you don't want to be held responsible at the end of the lease for someone else's wear and tear.
"You should ask to see records to make sure all the necessary maintenance has been done to preserve the warranty, too," Reed says.
You can pay for a vehicle history report from CarFax.com or AutoCheck.com to find out if the car was in an accident or has had its odometer rolled back.
How to assume a lease
If you've made the decision to assume a lease, you should be prepared to negotiate with the lessee and to have your credit checked by the financing company.
"The lease company wants to make sure you can fulfill the terms of the lease," Reed says. "The lease seller will want a complete release of liability, so the subsequent agreement will be directly between you and the lease company."
Hall says that while you need to have good enough credit to qualify for the lease, you won't be subject to tiered pricing based on your credit since you are taking over the exact terms of the existing lease.