Hey Cool Car Fans,
A few times a year I will get an email or a phone call from someone asking me if they should take over someone else’s lease. There are websites that offer this service and I’ve done this for some of my clients as well, not through those websites, but directly through the leasing company. I only would do this when it makes sense.
I figured I would write a quick article about the benefits and disasters that can occur in assuming a lease or using a lease buyout service.
WHEN TAKING OVER SOMEONE’S LEASE MAKES SENSE
First of all, it rarely ever makes sense to take over someone’s lease because you are assuming the remainder of their financial obligation.
However, if you have credit issues and the person’s lease that you’re assuming has stellar credit you could really hit pay dirt. The problem is that you have to get the leasing company to authorize you to assume their lease, so they are going to require that you have good enough credit and the financial ability to pay back the lease. There is where the problem lies for most people because if the person who has the original lease obligation has better credit and a better financial situation than the person applying to assume the lease, what is the incentive for the leasing company?
The other time it can make sense is if you want to buy the vehicle at the end of the lease term and the person trying to get out of the lease doesn’t have that many payments left on it. For example, let’s say that you are interested in buying a 2017 Porsche Macan. You could take over someone’s lease that they have for $996 a month for 18 months and if the residual to buy it out at the end is $31.141 that could play really well for you. You’re grabbing a much more expensive vehicle for under $50,000. I saw this exact opportunity by the way. Again, you have to see if it makes sense or if you are better off just buying the vehicle as I will discuss next.
WHY TAKING OVER SOMEONE’S LEASE USUALLY DOESN’T MAKE SENSE
As I mentioned before, assuming a lease could make sense if you have credit challenges and you can get a better lease payment than you would get on your own. However, what if you have better credit than the person who’s lease you are assuming? They maybe at a 6% effective interest rate and you could be getting a lease on your own at a near 0% effective interest. The lease is being sold based on a payment, but it in fact might be a really terrible lease that you are assuming.
The residual may also be terrible as well. If your goal is to give the vehicle back at the end of the lease and you can stay within the remaining miles that could be a good option for you. What if you go over the miles though and the lease is setup where you have to pay $.25 or $,30 a mile for each mile that you go over? If you go over by 10,000 miles you could be writing a check at the end of the lease for $2,500 or $3,000 to give the vehicle back. What if you want to buy it out at the end of the lease term, but the leasing company bet wrong and put too high of a residual for the marketplace? Then you’re in a situation where the best option is to give it back, so you basically just rented the vehicle with a higher level of risk.
If you have good credit and they have the vehicle you want with a great residual than instead of assuming the lease, you might be far better off buying out the person’s lease for their remaining payments and the residual value. You could then finance the vehicle or lease it using a used vehicle lease based on the buyout value. This could work far better if you have good credit, instead of leasing a vehicle based on someone else’s credit.
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Auto Consultant – John Boyd: The Cool Car Guy
John is an auto consultant who owns CoolCarGuy.com that is a licensed car dealership in Lone Tree, CO. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy