photo: Pat Durkin
That multi-year lease on a shiny new sports car may have seemed like a good idea a few years ago, but now it doesn’t fit your lifestyle or your budget. Or maybe you’d paid off your car and got lured in by a five-year Cash for Clunker lease and a government rebate.
The good news is, it is possible to get out of most auto leases by transfering them to someone else. Sergio Stiberman, CEO and founder of LeaseTrader.com, an online service that enables lease holders to find people willing to take over their contracts, people do it for a variety of reasons: a desire to upsize or downsize, a job loss, or relocation to an area that doesn’t require a car.
Want to exit your car lease gracefully? Here’s what you need to know:
1. Check your lease terms
Some companies, like Honda Financial Services (the financing arm of Honda Motor Co. (HMC)), allow lease transfers or assumptions only under special circumstances. Other companies allow lease assumptions but not in the final year of your contract. Or they keep the original lessee accountable if the new one stops making payments.
The latter should be a red flag for any lease holder, says Tarry E. Shebesta, president of LeaseCompare.com. “When you do an assumption, make sure you’re totally off the hook, so if they turn it in and they owe miles and wear and tear, you’re not still on the hook.”
In addition to that, you can expect to pay fees for transfering your lease. Those usually run up to a few hundred dollars, but that’s often negotiable with the person who assumes your lease, Shebesta says.
LeaseTrader has a chart showing restrictions and fees for various car companies; however, it’s smart to check your own contract, too.
2. Post your listing
In addition to LeaseTrader.com, you can also use SwapaLease.com. You’ll want to have your lease contract in front of you for filling out internet forms with information like lease terms, model, make, and more.
Stiberman says most of the leases listed on LeaseTrader.com are transferred within two to three weeks of when they’re first listed. “Some deals will never get out, but you have the deals that get out quickly,” he says. “Demand for these cars is high. It makes so much financial sense to take over a lease, because there’s no down payment and the terms are shorter.”
That’s why it’s generally easier for lessees with low mileage and a shorter time frame to find a match. Not surprisingly, it’s been challenging for Cash for Clunkers lessees to exit their five-year leases after just a year. According to Stiberman, “unless you have a very appealing monthly payment or a lot of mileage available, it’s going to be very difficult to persuade another lessee to take over your lease.”
3. Get the car inspected
Many leases are transferred across state lines, so you’ll want to get the vehicle inspected before transporting it to the new lessee. Depending on the situation, you might be transporting the car yourself or paying a shipping company.
“Whoever assumes that lease is [usually] going to be on the hook for any wear and tear charges,” says Shebesta. “But the person who’s letting the lease go wants to take care of everything.” Shebesta recommends taking the car to an authorized dealer for inspection and repairs, if necessary.
4. Consider the tax implications
In addition to coordinating transportation, out-of-state lease transfers introduce another challenge: taxes. Some states tax a car lease based on the upfront purchase price and others base it on the monthly payment. Transferring a lease to someone in the same state generally involves few, if any, tax complications. But out-of-state transfers get tricky when one state taxes one way and the other state has a different system. Even if the two states are on the same system, the tax could go up or down, so the new lessee will want to know that.
Figuring out all that stuff in itself may be frustrating to deal with. “The problem is, it depends on who you talk to at the DMV,” explains Shebesta. “You may call the DMV three times and get three different answers to the same question. And if you’re paying on the monthly payment and you go into a state that collects upfront, that’s where it’s going to get shady.” Whatever the tax situation, Shebasta suggests that the new lessee get the rules in writing from the state’s department or registry of motor vehicles.
In most cases, transferring your lease makes more sense than paying for parking, insurance, and a car you don’t use or simply dumping the vehicle at the dealership and stopping payments (that’s called a voluntary repossession and it will impact your credit). In case you find yourself negotiating with your leasing company, Stiberman offers this word of warning: “Don’t roll over your lease into your next car.” Instead, see if you can finish the lease or transfer it to someone else.
Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.