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Taking over a lease can save you a lot
The primary financial attraction is that there's no down payment to make
By ALEX LAW
Thursday, April 8, 2004
For years my brother has bombarded me with questions about vehicles he thought might suit the Ottawa climate and his position as a partner in a law firm.
But none of the missives mentioned the pricey VW Touareg since the large SUV is over his budget (he, his homemaker wife and pre-school daughter were looking for a third family vehicle), so I was surprised to see it turn up in an e-mail.
Well, it turns out one Touareg in particular appeals to David because he can take over its lease for its last two years, giving him some serious cost benefits.
He's not alone in thinking that, because taking over a lease that someone's anxious to get out of can help both parties, but particularly the person stepping in.
The primary financial attraction to taking over a lease is that you don't have to come up with any money down; so if you decide to buy the vehicle at the end of the lease you save the amount of the original lessee's up-front money.
Each case is different, of course, depending upon the size of the down payment, the terms and length of the lease, and the original lessee's desperation. If that person is really anxious to walk away from the lease, there's no legal reason why the lease-assumer can't ask for a financial incentive, often in the form of a flat up-front fee.
Taking over an existing lease also appeals to people who don't want to go through the whole dealership dance with the wrangling over rust-proofing and extended warranties. With a lease transfer, you only have to prove to the people holding the paper that you have the financial resources to make the payments and the deal is done.
Some people also like taking over a lease because it provides them with the chance to try more cars for shorter periods than is normal.
For my brother, the chance to get a luxury vehicle for less money is the sole motivation.
"The benefit for me is getting someone else's down payment," he says, the first of three financial elements to a lease, in addition to the monthly payments and the residual value (or "the buyout") at the end of the contract.
"The guy has sunk money into the Touareg and is now getting ready to leave North America," he explains. "That's the attraction -- the benefit of getting someone else's down payment."
He doesn't care about getting a luxury SUV for a good monthly price and then walking away from it when the lease expires. "I'll only do this if I'm certain to exercise the buyout, since then I'll be picking it up for 60 to 70 per cent of its original value."
If the down payment on the $65,000 Touareg V8 was $15,000, then my brother essentially gets the car for about $50,000.
"If he's put in more down than it has depreciated," he says, "then that's the magic. If I can pick up the buyback, then it's a great deal. I pay $1,000 a month for two years and then I save $15,000."
For Jayne Fields, a Toronto homemaker whose husband owns and operates a small construction company, saving money on a Honda CR-V was only part of the appeal of assuming a friend's lease after two years.
Fields appreciates the math of getting a nice little compact 1999 SUV for only about $200 a month; the low lease payments are because her friend used her previous low-mileage Honda Civic as a trade-in when she arranged the lease.
But she really likes lease-assumption because of the angst it saved her.
"I hate the whole car-buying experience," she says with a shoulder shiver for emphasis, "and I think a lot of women feel the same. Taking over a lease allowed me to get a good car without having to go to a car dealership, and that's important to me."
Though most car companies and other financial organizations don't seem too excited about lease-transfer deals, they usually go along if the new lessee is a good financial risk, so it's not that hard to get approval.
Ford Canada actually helps find new customers for existing leases, spokesman Chris Banks says. "Ford Credit Canada has a plan called Lease Transfer, where a customer that would like to get out of his or her lease early can go to a dealer and ask if they have anyone who would like to take over the lease, or they can bring a prospective new lease customer in with them."
Banks says the new customer would have to go through the same credit checks as any new lease customer and, if approved, would then be able to assume the lease.
Ford does this, Banks says, because "We don't lose anything. If it's a customer who has run into trouble and will not be able to continue their payments or their circumstances have changed, like expecting to have a baby and ending up with triplets, it is easier to collect the same lease payment from someone who can afford it than repossess the vehicle after the original customer has missed a number of payments and has let the vehicle fall into disrepair, or they are left with a vehicle that is not capable of meeting their needs."
No other car company in Canada admits to having anything like Ford's plan, but JoAnne Caza, the marketing manager of Mercedes-Benz Canada, thinks it's a wonderful idea, so don't be surprised if something similar happens there.
The big problem for someone looking to save money is finding someone who wants to get out of their lease.
Not everyone's as lucky as my brother, who narrowly missed being run over by the 2004 Touareg he's thinking about leasing because he was staring at the SUV with lust in his eye. The driver noticed this and rolled down the window to ask: "You want to take over the lease?"
You can always ask around or even approach your dealer, but there are also firms that specialize in acting as intermediaries for lease transfer deals. One of the biggest is a U.S.-based website called Swapalease.com, which offers extensive information on how it all works and helps find people looking to get out of a lease. It is in the process of expanding to cover Canada.
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