Web Services Can Grease Transfer of an Auto Lease
When M. Simonne Hinkle went looking for a new car, she knew exactly what she wanted and how much she ought to pay. The trouble was, in nearly a year of looking, auto dealers were asking for a bigger down payment and monthly payments than she thought her dream wheels warranted.
But during one of her many Internet searches for the right make and model, the Los Angeles technology executive found an alternative -- a lease transfer service that matches customers like her with drivers who want to jettison their auto leases early.
Within a month, after working with Swapalease.com, she was the proud owner of the exact Mercedes CLK convertible she longed for -- and for about $5,000 less than the best price she had been able to negotiate at a dealership.
“I got it from this guy in Manhattan Beach who had negotiated the exact deal that I wanted on the perfect car,” she said. “We got the best of both worlds.”
Leasing has gained popularity in the last decade, as about 1 in 4 auto shoppers take advantage of down payments and monthly installments that are typically lower than they would face if they were buying a comparably priced car or truck.
Of course, drivers get no equity in their vehicles, and there may be a sizable lease-end payment at the completion of the contract.
Still, the commitment can be for as little as 24 months, which suits those who like to change vehicles frequently.
But what happens to drivers who fall out of love with their wheels? Or those who have a change in circumstances -- losing their jobs, moving cross-country or finding that the two-seater no longer accommodates a growing family? That’s where lease transfer services come in.
Jo Clemente fell in the nolonger-in-love group. Unlike Hinkle, he had leased his Lexus GS 300 impetuously. Within three months, the Studio City film editor knew he didn’t want to live with the 36-month contract he had signed. It was a great deal, he said -- just the wrong car for him. Ten days after Clemente signed up with Swapalease, a San Diego doctor took the Lexus and its lease off his hands.
“It was frighteningly painless,” Clemente said. “I kept waiting for the other shoe to drop -- for something to go wrong. But it never did.”
Lease transfer services sprung up in the late 1990s to provide a legal way out for drivers who might otherwise face stiff early-termination fees. The services, which are generally Web-based, advertise the vehicle and provide the information and paperwork necessary to legally transfer the lease from one buyer to the next.
The services typically charge a registration fee that can be as little as $30. They then may collect a brokerage fee of $99 to $200 if the customer ends up finding a car. Drivers who assume a lease can be subject to additional transfer fees imposed by the leasing company, and those can range from $35 to $600.
“Most people are not aware that leases can be transferred most of the time,” said Scot Hall, director of lease operations for Cincinnati-based Swapalease. “We brought awareness of that, and a marketplace for the transfers to happen.”
As in any auto transaction, there are potential risks for all parties.
An incautious buyer, for example, could get saddled with additional mileage charges and fees for excess wear and tear caused by the previous owner. A seller who doesn’t do his homework -- or read his paperwork -- could find himself on the hook for payments missed by the new owner.
“It’s like buying a used car -- it’s ‘buyer, beware,’ ” said Sergio Stiberman, president and chief executive of LeaseTrader.com in Miami. “You want to do as much as you can to cover yourself.”
The first step prospective buyers should take, he said, is to shop at traditional dealerships. As Hinkle did, they ought to make sure they can’t do better elsewhere before they assume a lease.
The second issue that should concern buyers is the lease-end payment. Generally this is assessed for two items: excess wear and tear and excess mileage.
Excess wear and tear typically covers dents in the body, tears in the upholstery and other visible flaws, but such payments also can be assessed for damage to the vehicle’s internal workings that might not be easily noticed.
Hall suggests that potential buyers spend a little extra to get an accident report on the car -- Web-based services can run its vehicle identification number to see whether it has been involved in an insurance claim or reported accident. In some cases, Hall also recommends getting a professional inspection by a mechanic, which usually costs about $100.
Dealing with mileage is easier. Each lease stipulates how many miles the driver can put on the vehicle during the term of the contract and what it would cost to exceed that allotment.
If the previous driver has put enough on the odometer to flirt with excess-mileage charges, the new owner might demand a payment to cover that cost, Stiberman said. In some cases, sellers might have to provide several thousand dollars to the person who assumes the lease to make up for the potential mileage liability.
On the seller’s side there are risks as well, Stiberman said, mainly because some leasing companies don’t grant a complete release to the seller. Instead, they will transfer the lease to a new owner, but the former customer will remain a “guarantor.” Translation: If the new driver doesn’t make all the payments, or owes money in the end, the leasing company could go back to the previous owner for payment.
Similar problems can crop up in “under the table” deals not sanctioned by leasing companies, Hall said. He cautioned that buyers and sellers should bear the added expense and go through the full, legal process of getting the leasing company’s approval to avoid such unpleasant surprises.
That approach certainly paid off for Clemente, who has left his Lexus in the rearview mirror and is a happier owner of a BMW X5 sport utility vehicle.
“My 2-year-old needed the space,” said Clemente, who has had seven cars in 10 years and has become an avid fan of lease transfer services. “This is a pretty amazing new thing. I’ve recommended it to friends.”
Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy .kristof@latimes.com. An archive of recent columns is at www.latimes.com/kristof.
