As cars have become more expensive, leasing has become attractive to a larger group of people. Inevitably though, within that population are folks who will need to end their contracts early.
Predictably, an industry has grown up around that necessity. Known as lease transfers, contracts are transferred from one individual to another in exchange for an agreement to fulfill the terms of the original deal. While this can be great for everyone involved, there are a few downsides to consider too.
Here are some of the pros and cons of lease transfers.
Minimal Initial Costs
In most cases, the person taking over the lease won’t need a down payment. The original lessee has shouldered all of the initial costs, so the person assuming the lease usually only needs to come up with the fees associated with administering the deal. Even better, the person looking to get out of a contract might even offer a cash incentive to make things even more enticing.
More Car for Less Money
People typically find themselves somewhere around midway through a lease contract when some change in their lives imposes getting out of the car. This represents an outstanding opportunity if you’re running a search around the keyword phrase “lease a car near me.”
Let’s say you’ve had your eye on that new Alfa Romeo Giulia sedan and you find someone two years into a lease at $387 a month. You’ll pay roughly $4,650 to drive a $40,000 car for a year. Plus, at the end of the lease, you’ll have the opportunity to purchase the car for the residual value attached to the deal at the beginning of the lease.
It could be one of the best used car bargains you’ll ever find. Even better, you can sell it, pay off the contract and keep the profit if the car turns out to be worth more than the residual value.
Taking our Alfa Romeo scenario into consideration, you’ll only have to commit to driving the car for one year. This can be a great way to get an extended test drive at a reasonable cost to see what it’s really like to live with the car.
You can keep it if you love it. You can walk away if you don’t. Either way, you’ll gain intimate knowledge you wouldn’t have otherwise. In other words, you’ll come out ahead — at minimal cost — regardless.
Let’s say your dream is to drive a yellow Alfa with a red interior. That’s a pretty rare combination. Sure, you might get lucky and find one. However, you’re more likely to find a red, black, white, silver or grey one. The same goes for the way the car is equipped. In other words, in exchange for that great deal, you’ll probably have to make some concessions in terms of the way the car is set up.
The Mileage Cap
In most cases you’ll find the original lessee agreed to drive a car like the Alfa no more than 10,000 miles per year. That’s fairly common with luxury models. However, it means you’ll only have 6,000 miles left in the contract if they agreed to a 36-month lease and you come up on the car at 24,000 miles and a year to go. This can be a rather significant limitation. It’s important to get clear on that aspect of the deal to mitigate your liability.
Keep in mind you’ll be responsible for all damage when the car is inspected at the end of the lease. To protect yourself, treat it like you would any other used car. Get a pre-purchase inspection to stave off any unpleasant surprises. After all, the original person might be trying to avoid that situation by passing the car on to you.
Lease transfers can work, when you go in with your eyes wide open.