Assuming a Lease
Lease assumption is another important concept under this category of vehicle financing. In the simplest terms, assuming a lease means taking an in-process lease agreement from another person and fulfilling its terms. For instance, say your friend has a lease agreement on his vehicle with 8 months left on it. However, he no longer wants the vehicle and the lease contract. In such a case, he can pass the agreement to you if you are willing to make the rest of the payments and use the vehicle till the duration is up.
Lease Assumption has increased in the last few years for many reasons. From the buyer’s perspective, it gives customers an opportunity to take advantage of short leasing durations which are given out quite seldom in Canada. So, if you do not want to tie yourself with a 40-month lease contract, assuming a lease is an easy choice. Moreover, with the lease assumption, you do not have to pay the down payment if it is mandatory by a certain leasing company.
If a seller wants to do away with lease obligations, he is often ready to offer incentives to lease buyers. These incentives include cash payments, cheques and other nonfinancial benefits. On the other hand, from the seller’s perspective, the lease assumption is the perfect way to get out of a binding agreement without paying thousands of dollars in early termination penalties to the leasing company. In the same breath, this transfer of lease contracts is also supported by the leasing company because if a vehicle is turned in before the duration is up, the company suffers huge losses.
If lease assumptions are so popular, where can you find them? And what should you look for in such an agreement? When you start looking for one, there are several avenues to search for a lease assumption. Local newspapers, dealership brochures, social contacts like friends and family members and online leasing websites and forums are just a few sure-shot information sources in this regard. For instance, if you find a seller willing to hand over his lease agreement to you, what should you look out for in the best deal? Here are some things to keep in mind:
- Monthly Payment: Ideally, for a lease assumption to be a good bargain, its monthly price should be lower than a brand-new lease.
- Cash Benefits: As mentioned previously, cash incentives are often very common when sellers want to get rid of the lease. If the seller you approach gives cash benefits, make sure you inquire whether these benefits are included in the monthly payment or are quoted separately. Also, ask the seller any other questions regarding incentives to be absolutely sure of the deal you are entering into.
- Location: Try to look for lease sellers closer to home. In case of proximity is not an advantage, you will have to fly or travel to the seller’s location to bring the vehicle and settle the deal, which may end up costing you more than $1000.
- Miles allowance: How many miles per month are allowed as part of the leasing contract? While this factor will be different for every company and vehicle, ideally, the vehicle you assume should have an allowance of at least 1000 miles or more. In case the seller’s lease offers more miles than an average brand new lease, you have become lucky!
- Residual Value: If you find a lease assumption with a very reasonable residual value or Lease End Buyout, apart from the other considerations listed above, consider it a stroke of luck. Not only will you have gotten a lease with a shorter term and no down payment, but also one that will make you the owner of the leased vehicle at the end of the lease duration.
Even if these variables are slightly off or not as ideal as you would want, don’t be afraid to negotiate with the sellers and ask some important questions regarding mileage and the condition of the vehicle. During the lease transfer process, buyers incur certain costs, some of which are unavoidable. These include:
- Registration Fee: If you are using an online forum like Car Lease Canada, a small registration fee will be charged for you to become a member of the website and look into lease assumption options.
- Credit Application Fee: This fee is charged by the leasing company for transferring the lease to a new buyer.
- Vehicle Registration Fee: A vehicle Registration fee is a must when you want to register the newly leased vehicle in your name.
- Vehicle Inspection & Transportation Fee: This fee is optional and may vary depending on where you live and the kind of inspection you want.
The Lease Assumption Process
Once the assumption has been finalized between you and the seller, it can now be taken to the leasing company. The first thing that the company does is to check the new lessee’s credit history. For the company to work with you, you should have similar or better credit ratings than the previous lessee. Together with this background credit check, you will be required to fill in a lease transfer application form. The form will have to be emailed or faxed to the leasing company that will then contact you directly once it has approved or disapproved the application. Next, the appropriate transfer paperwork will be prepared and sent to both parties. Peculiarities like long-distance transfers and inspection upon delivery should be decided upon before any papers are signed. When the papers are signed and sent to the leasing company, you become the new owner of the vehicle under question. Lastly, the company will later send more documents to initiate registration and other smaller lease-related tasks.
Leasing Company Policies Regarding Assumption
Company policies regarding Lease Assumption should be studied and inquired into. These include:
- Ability to transfer: Does your leasing company even allow for lease transfers?
- Transfer restriction: Transfer restrictions like not being able to lease the car to a lessee, who is outside the particular state, may also apply.
- Contingent liability: Many companies would let you transfer the lease. However, in the event that the new lessee fails to make payments, they will hold you accountable. Together with this, coverage for loss of physical assets in the accident is also included.