auto lease exchange
A auto lease exchange is a contract that is typically entered into by a lessee (the individual who will be driving the given vehicle) and a lessor (the individual or company that actually owns the vehicle). The lessee is agreeing to pay for the use of the vehicle over the period of the lease. Payment are determined by depreciation, which is the value that the vehicle is expected to lose over the term of the lease. The lessee also assumes financial responsibility for any damage done to the vehicle over the period of the lease. At lease end, the lessee must return the vehicle to the lessor, unless the lessee decides to purchase the vehicle at lease end.
What is a lease assumption?
A lease assumption allows one person to assume an in-process lease from another person.For example, if your neighbor had 18 months left on his car lease, and you wanted to take over his lease, you would simply assume his lease and start making the payments each month for the remaining 18 months. At the end of the term you would turn the car into your leasing company just as you would if you had leased the vehicle new. The process itself is relatively easy to understand and can provide a great deal of benefit and financial incentive if you use a lease assumption to your advantage.
What are the benefits of assuming someone else's lease?
For the Buyer (the person assuming a lease) you are able to take over an existing lease with no money down and with a shorter lease term than you would normally have to take on if you were to write a whole new lease. In most cases it is difficult to even find a “short term” lease these days with the average lease term ranging over 40 months. Assuming a lease can save you thousands of dollars and only require a short term lease agreement. In many cases, Sellers (those looking to hand over their leases) are willing to offer Buyers incentives in the form of cash or other terms that are exciting to Buyers. We have seen cases where Sellers are willing to write checks as large as $15,000 to walk away from their lease obligations! The incentives offered are typically in proportion to the size of the lease and the intentions of the Seller.
Why would someone want you to assume their lease?
As the existing holder of a lease (let''s call this person a “Seller”), they are already bound to a leasing contract for the duration of their remaining term. In order to exit that lease early, they would have to pay thousands of dollars in early termination penalties to their leasing company. The leasing company is under very little incentive to allow the Seller to return your vehicle to them. They lose thousands of dollars instantly when a vehicle is turned back in early.
The alternative is to find someone else who would like to assume a lease, allowing the Seller to walk away without paying these stiff penalties. In some cases they may offer a cash incentive to a Buyer to make their deal more attractive than a new lease or competing deals.
It's important to remember that when signing a lease you have a contractual obligation to the leasing company for the entire term of the lease. It''s not a month-to-month rental, so your obligation is not just the monthly payment, but the entire amount of the lease, which usually totals tens of thousands of dollars.
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