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How auto lease takeovers work

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Car leases can be convenient in that they afford you the opportunity to drive a new car without a long-term commitment. At the end of the lease, you’ll have the option of turning in the car or buying it outright.

Normally, you lease a vehicle at a dealership. However, if you don’t want to go that route, you could do a lease takeover instead. A lease takeover is when you assume the lease from the original buyer, meaning you’ll be financially responsible for fulfilling the terms of the lease.

To help you determine if a lease takeover is the right fit for your situation, here’s a deeper dive into how leases work. 

How does a lease work?

When you purchase a car, you pay fixed monthly payments until the total value of the car is paid off. During this time, you can drive it anywhere, make modifications, and travel as many miles as you would like. After paying off the car, you’ll receive the title and you can resell the car or keep it at your discretion.

Leasing a vehicle works much differently. With leases, you enter a term between two to four years where you make fixed monthly payments that do not count towards ownership of the vehicle. At the beginning of the lease, you might make a capitalized cost reduction that functions similarly to a down payment in that it lowers your monthly payment throughout the term.

Along with shorter terms, leases have more restrictions compared to a lien. The first and most important is mileage restrictions. Lessees have to keep the vehicle under a specified mileage before turning it back in or face steep penalties for every mile exceeded.

In addition, you cannot make any modifications to the vehicle since it belongs to the lessor. On that front, you can also be held financially responsible for any wear and tear that exceeds normal use. 

When you lease a vehicle, you are required to carry car insurance throughout the term of the lease; this includes collision and comprehensive coverage. Your leaseholder might also specify deductible amounts to maintain as part of the lease agreement. 

One factor to consider is GAP insurance. This form of insurance pays the difference between the market value of the vehicle at the time of total loss and how much you owe on the lease. Some leasing companies include this in their agreement as a requirement, so it’s important to check the details to see if that is included. If it’s not required by the lessor but you would prefer the extra protection, many car insurance companies offer this as optional coverage. 

Do I qualify for a car lease?

To qualify for a car lease, you must have good to excellent credit. The leasing company will also examine your debt to income ratio to ensure you have enough money to cover the lease payments. If you have a lower credit score however, you can qualify if you have a cosigner with excellent credit.

Qualifying also requires having a valid driver’s license and full coverage auto insurance. 

If you have these things, you can determine if a lease is right for you. Here are some considerations to keep in mind:

Pros:

  • You’re not tied to a long-term financial obligation
  • You have the opportunity to drive the newest cars every few years
  • Almost all repairs are covered by the warranty
  • You can walk away at the end of the lease under no other obligations

Cons:

  • Your payments do not go towards ownership of the car
  • Mileage restrictions
  • Penalties for wear and tear
  • You could potentially pay more for car insurance

Why transfer a car lease?

There are several reasons to  transfer a car lease. For example, you might not like the car, or your financial situation has changed and you can’t afford the payment anymore.

Taking over a car lease is an easy way to bypass a dealership. The process is easy, as you just apply with the leasing company then fill out required forms. This gives you a way to obtain  your vehicle of choice without the hassles of a dealership. 

Why not transfer a car lease?

There are several reasons why you might not want to transfer a lease. To start, some leasing companies prohibit transfers for the first year of the lease, or if the lease is within six months of completion. 

Another consideration is that if you do transfer a car lease, it can be expensive; potentially several hundred dollars just to transfer the lease. And it isn’t a quick process, as some lenders can take weeks to complete all the paperwork.

On the other end, assuming a car lease isn’t going to the best option in every instance. To demonstrate, if the original borrower had a lower credit score or didn’t make a down payment, you could end up paying a higher monthly payment.

Additionally, there’s the condition of the car to consider. With a lease transfer, there’s a risk of hidden repairs that the buyer might not disclose. Another consideration is if the driver has used up the majority of the allowed mileage on the car, it can limit how much you can drive it after assuming the lease. For these reasons, it’s important to do your research before assuming someone else’s lease. 

Lease transfer rules 

Are there rules for transferring your lease?

If you’re planning to transfer your lease, it’s a good idea to contact your lender first. Each lender has different requirements for transferring a lease. Normally, the rules require that the person assuming the lease can qualify to take it over, and that your current lease is up-to-date. From that point, lenders can differ on what they require for transferring a lease.

How do they differ?

Some lenders won’t allow you to transfer a lease within the first year of the lease starting. Others might prohibit you from transferring the lease within the last six months. Either way, it’s important to speak with your lender first so you can better understand what the transfer rules are upfront.

Common lease transfer rules

  • Within the time period allowed to make a lease transfer.
  • Both you and the buyer understand and adhere to any lease restrictions outlined by the lender. 
  • The person assuming the lease qualifies after a credit check.
  • You pay the lease transfer fees and complete all paperwork.
  • The transfer recipient pays for the credit application and completes all paperwork in a timely fashion. 

How to transfer a car lease

The best-case scenario for transferring a car lease is to find a trusted friend or relative to take over the lease. This arrangement can give you peace of mind and make the process much easier.

You can also leverage websites like swapalease.com where you can post your car and others are able to contact you to assume the lease. Websites like these are intended to provide an expedited experience for transferring the lease, and in the event you have to remain on the lease after the transfer, they offer insurance to financially protect you if the buyer defaults.

Considerations before you take over an existing lease

When taking over a lease, you’ll want to inspect the vehicle’s condition, look at the lease agreement to verify the cost of the remainder of the lease, and gain a better understanding of any restrictions the leasing company might have once you take over.

Lease takeovers can work if you do your homework

  • Notify your lender on your intention to transfer your lease
  • Pay all fees and complete all paperwork
  • Find a friend or family member– or someone through a trusted website– to assume the loan
  • On the buyer’s end, research the vehicle history and lease terms
  • Apply, complete paperwork and takeover ownership

Conclusion

Lease takeovers are a great way for a buyer to offload a vehicle they can no longer afford and for a seller to take over payments while bypassing a dealership. Since lenders have different restrictions on lease transfers, it’s important that the seller contact the lender beforehand to ensure they understand the whole process and are aware of all the fees involved.

The buyer will want to inspect the vehicle and examine the lease terms to ensure the transfer is a good deal.

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