How to get a car lease divorce
What you need to keep in mind when breaking your car lease agreement.
Want a divorce from your car lease? There’s a marketplace for that. LeaseBusters, Lease Experts and Canada Auto Leasing connect auto lease sellers and buyers, often saving consumers thousands in the process.
Greg Rubin dearly wishes he’d used one of the sites after he leased his über cute Toyota Tacoma compact pickup in Calgary five years ago. Rubin was only 13 months into the contract when he and his new girlfriend discovered a baby was on the way. Pickups with no full backseats don’t make the best family vehicles. He went to the dealer who happily sold him a new car with no interest on a five-year payment basis.
Because Rubin was strapped for cash he took a deal whereby he didn’t have to pay anything toward the $9,000 remaining on the lease until he had finished paying for the new car. Turns out the deal wasn’t such a bargain! Once the new car was paid off, payments on the broken lease kicked in.
Worse, accumulated interest was added to the balance owing. And though the truck had been driven for only 13 months, it had 42,000 kilometres on it, considerably more than the 25,000 maximum, triggering excess mileage charges.
A far better option for Rubin would have been a service like one of the car lease sites, hopefully allowing him to find a buyer for the remainder of his contract. Rubin would have eaten the $3,000 down payment he made on the leased vehicle. He might also have had to offer an incentive (they average between $500 and $2,000) as encouragement to take over his lease because of the excess miles and some wear.
Still, the end result would have been a whole lot better than what he ended up paying on the broken lease.
There are many reasons to break a vehicle lease beyond having no room for baby or a cash crunch. A job transfer is a typical one where the lessee doesn’t want the bother of returning the vehicle to the place where it was leased. Equally common are those who simply love that new car smell and can afford to keep rolling over leases to get the endless thrill of newness. Though they will pay indefinitely for their wheels, they never have to face repair bills, which seem to start coming the day after the warranty expires.
On the buyer end, taking over a lease can make sense. Many don’t want to make a financial commitment of up to five years. Also, taking over a lease avoids the down payment. However, the buyer might have to pay an incentive to the seller if the vehicle has been lightly driven or the monthly payments are particularly low because the seller made a larger down payment.
Cash incentives are common and allow a seller to recoup some of their outlay, which could include pre-payment for kilometres over the contract maximum.
Lease transfer sites operate similarly. The seller inputs the vehicle information, the monthly payment and any incentive offered or requested. Once a deal is pending, the site, or the seller, contacts the lease company, which then sends transfer documents to both individuals. Transfer fees are around $400 and the cost of listing ranges from $90 to $295.
LeaseBusters also offers a no-cost evaluation service to determine if there is a market for a given vehicle.
Depending on the vehicle, the transfer can take a few weeks. Because BMW is one of the most popular leased (and transferred) vehicles in North American, the company often expedites transfers.
Despite the marketplace facilitating auto lease transfers, leasing isn’t a money smart option for most individuals. Imbedded interest costs are higher with leasing versus financing, costing on average $100 a month. Though actual monthly payments are lower than for a financed vehicle, you’re only paying down a small portion of the principal during the lease period (with a big chunk going to interest), compared to the entire amount for purchased vehicles over the financing period.
It is important to go beyond the monthly payments and view the entire cost of leasing, including what happens when the lease expires. However, if a leased car is a good, or the only, option, be sure to investigate transferring the contract should you need to get out early.
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