How Does a Lease Swap Work?
A lease swap is a process by which the person who controls a lease on a vehicle transfers it to another person under the same conditions as the original lease agreement. Car leasing is one of the most popular ways to get a vehicle that may normally be outside of your price range. But if you’re looking to upgrade before your lease term is over, transferring the lease to someone else can be a good way to get out of the contract.
Car lease swapping may sound relatively straightforward, but there’s actually a lot that goes into how it works. If you think lease swapping may be how you want to move forward with your lease, it’s important to understand what the process entails. Discover everything you need to know about leasing to ensure you’re getting the most out of your efforts, whether you’re trying to swap an auto lease you already have or take over a lease from someone else who’s terminating their contract early.
Leasing agreements can be fairly beneficial deals, so ending one early may not make sense to a lot of drivers. Certain circumstances, however, can make ending a lease early not only more feasible but also necessary. The circumstances can be mundane or quite significant, from simply becoming tired of the vehicle to major life changes that may create the need for a larger car, such as having a child. Whatever the case may be, there’s never a shortage of people trying to end their car lease early.
Why Would You Want to Get a Transferred Lease?
Getting a new car lease has plenty of benefits, but you may want to consider getting a car lease transfer for several unique advantages. For instance, since you’d be adopting the same leasing terms as the original lessee, you can find shorter-than-usual lease periods, which is less of a commitment for you.
When you first get a new lease, there’s typically a down payment to cover, but if you opt for a lease swap, the original lessee has already taken care of this. While there are still transfer fees, they’re typically much less than a down payment.
Since the original lessee either paid a down payment or traded in a vehicle at the onset of the lease, you may even end up with lower monthly payments compared to signing a new lease. Once you combine that with the shorter leasing period, you’re looking at some serious savings when getting a lease swap versus making a large down payment on a new vehicle lease or purchase.
Obstacles to a Car Lease Swap
Before you can move forward with a car lease, there are a few factors to keep in mind. Several obstacles may prevent you from actually being able to do a car lease swap, and it’s all a matter of what the policies of the leasing company are. These are some obstacles you may face when searching for a car lease swap:
Complete Prohibition
A leasing company may outright prohibit car lease swaps altogether. If that’s the case with your leasing contract, you’re simply out of luck unless you qualify for the rare exception. A few exceptions usually exist in leasing contracts, such as an impending military deployment.
Prerequisites
To be eligible for a lease swap, you’ll typically have to meet certain prerequisites first, as stated by the leasing company. These conditions can vary quite a bit, but they include factors such as how long you’ve had the lease. For example, a four-year lease agreement may require that you have the lease for at least two years before you’re able to swap.
Limited Liability Transfer
Some leasing companies won’t actually allow you to transfer your lease entirely to someone else. Exceptions may apply, but generally speaking, the original lessee may only be able to partially transfer the lease to another party, meaning they would still share some portion of the liability if the monthly payments don’t come in on time from the new lessee.
The Car Lease Swap Process
While the process for car lease swaps is relatively straightforward, it’s far from simple if you don’t know what you’re getting into. Take a look at the details of the process so you can understand exactly how it’s going to work:
Confirm It’s Possible
The first step is to confirm that you’re actually eligible to initiate a car lease swap. A lot of leasing companies either prohibit lease swaps altogether or assert special requirements that you have to meet to be eligible.
Find Someone to Take the Lease
It’s up to you to find someone to take over the lease. In many cases, a friend or a relative is the person seeking to take on the lease, but if you need to end your lease early for personal reasons, you may have to expand your search. Fortunately, there are sites that specialize in lease swaps and provide all the tools you need to get it done right.
Wait for Approval
Because you’re just leasing your vehicle and don’t own any part of it outright, the leasing company has the final say on whether the swap can move forward. They’ll run a credit check on the person you intend to swap the lease with to determine whether they can abide by the same standards set in your original lease agreement. If the results are positive, they’ll sign off on the lease transfer and you can file the paperwork to make it official. Note that this is typically when the lease transfer fee has to be paid.
Abide by Legal Standards
If you’re the person taking on the lease from the original leaseholder, you may need to put forth additional efforts after the lease takeover to ensure that you’re remaining legally compliant beyond the finance company’s requirements. For example, you may need to get a new registration for the vehicle, which could also involve getting new license plates. Both need to be put into your name to make it official. You can contact your state’s department of motor vehicles to determine exactly what’s required.
Factors for Lease Swap Recipients to Consider
Taking over someone else’s lease comes with a lot of advantages, including savings in most cases, but there are still some factors to consider that could make the cost a bit higher than you might expect, such as transfer fees. Here are other considerations to think about:
State of the Vehicle
In most lease agreements, you must return the leased vehicle in good condition, showing no more than the reasonable amount of wear and tear that’s expected over the duration of the lease term. They’ll charge the leaseholder for any costs related to extra damage. This is fairly standard and may seem innocuous enough, but it’s important to look at the specific details and requirements. You should check the vehicle accident history and may want to get the car inspected by a mechanic before taking on the lease obligation.
For example, some lease contracts may specify damage limitations, such as a minimum tire tread depth or scratches below a certain size only. Make sure you always go over these specifications and examine the vehicle to see if it’s in violation of them. If it is, you’ll need to weigh the cost of getting those violations fixed against how much you’ll save by getting a lease swap.
Mileage Cap
Similar to damage limitations, a leasing company also puts limits on how many total miles the lessee can drive over the duration of the lease. Every mile it goes over the limit comes with a fee, which is about 20 cents per mile in most cases. Always make sure you check the current mileage and compare it to the maximum limit before taking on the lease.
Additional Costs
Some additional costs involved in lease transfers include taxes and insurance. In several states, they tax a lease transfer just like a normal purchase, and you’d be responsible for covering that cost. When it comes to insurance, a leased vehicle typically has to have both comprehensive and collision coverage as a minimum requirement by the leasing company. The state then expects you to hold personal liability coverage. If extensive insurance is a part of the lease agreement, you’ll have to cover that yourself upon lease assumption.
Benefits of a Lease Swap
Taking on a lease swap comes with quite a few advantages that can put some serious savings in your pocket compared to buying new or opting for a new lease. Here are some of the most impactful advantages to keep in mind:
Lower Payments
Leasing a vehicle rather than buying one can be a great way to get your hands on a vehicle that might otherwise be a bit outside of your price range. Getting a lease transfer is often more affordable, so you might be able to find a car even further out of your price range and still get it with a lower monthly payment. Plus, you won’t have to worry about a down payment.
Eager Sellers
A lot of people looking to swap their lease tend to be quite eager. Whether it’s due to financial issues or other circumstances, the reason someone needs to swap their lease tends to be relatively urgent. That means you may find some good deals available along with incentives like covering the lease transfer fee.
Short Term Limits
Since a swap involves the new party taking on the same leasing terms as the original leaseholder, the time the first lessee used the vehicle counts toward the total lease duration. That means you’ll find shorter term limits than normal, so getting a lease transfer is less of a commitment. This is especially helpful if you’re just looking to drive a new car with a short-term lease instead of a long-term commitment.
Lower Mileage
In most cases, lease transfers won’t have all that many miles on them if the previous leaseholder was diligent in abiding by the terms of the lease. Because of this, a lease swap tends to have fewer miles on it compared to the same car that you could buy used.
Downsides of a Lease Swap
While the advantages of a lease swap are significant, there are still some disadvantages you’ll want to be aware of before moving forward and taking on any kind of lease transfer yourself, including:
Savings Are Limited
While a lease swap certainly can offer great savings, they aren’t always significant. By only paying marginally more for a brand-new lease, you could potentially get the benefit of a brand-new car without that much of an increase in your monthly lease payment and overall price.
Risk of Undetected Problems
While the reasons people want to swap their leased vehicle are usually innocent and understandable, some try to swap it because they know they violated the leasing contract. If they violated any damage limitations in a way that’s not easily detectable but is beyond typical wear and tear, that burden then falls to you upon lease assumption. The leasing company will hold you responsible for it, and you’ll be obligated to cover the cost of the damage.
Sales Tax
In states that charge sales tax on lease swaps, you’ll have to pay the state a significant amount. Depending on how sales tax on this kind of transaction is calculated, you may be looking at a hefty fee.
Leases with Low Miles Are Rare
While people tend to stay within the limits of their maximum mileage usage as stated in the leasing contract, it may not leave you very much room to work with after the swap. People tend to go easier on the miles the closer they get to the limit, meaning they rack up more miles during the beginning of the lease period. Because you’d be taking on the end of the lease term, you’re more likely to have fewer miles at your disposal, even if the total leasing period is split exactly in half between you and the previous leaseholder.
Where Can I Find a Car Lease Swap?
If you’re looking for a car lease swap, you’ll be pleased to know that it’s actually easier to find one than you might think. Several online resources are available for both buyers and sellers, but you should always make sure that any avenue you pursue is legitimate.
Swapalease is among the largest legitimate platforms, but there are several others you may be interested in as well. This site, along with several others, lets you search a wide inventory of options, whether you’re looking to transfer a lease or take over a lease.
Tips for Buying a Car Lease Swap
If you’re looking to get a car lease swap of your own, there are a few tips that can help you get the most out of your efforts and ensure that whatever vehicle you get will offer a satisfying experience for the rest of the lease term, such as:
Verify the Car’s History
No matter what any seller says, it’s always a good idea to independently verify the vehicle’s history before you finalize the lease transfer. Get thorough documentation of all its maintenance services and full accident history. If this is unavailable, you probably shouldn’t agree to the swap. Remember, maintaining records of regular service is a part of most leasing agreements. If the lease is transferred to you and the original leaseholder didn’t meet this requirement, the burden to cover the cost of that failure will fall on you.
Get the Car Appraised
Nothing specifies the value of a car quite like a private appraisal can. Their business is offering the most accurate kind of appraisal possible, so you don’t have to worry about any conflicts of interest. A private appraisal will let you know just how much value the car has.
Be Prepared for Insurance
The insurance requirements for a lot of leasing contracts can be significant. Typically, they require a lot more than the state does, so you’ll have to meet both the state’s minimum legal requirements and the minimum requirements of the leasing contract. If you don’t normally carry a lot of insurance on your vehicle, this is going to add a significant cost increase to your overall monthly payments for car expenses.
Finance Editor
Jim Slavik is a financial services expert with 30 years of strategic and operational experience including leading underwriting, loan administration, customer service and collections. He has held C-suite credit operations roles for Fortune 100 and private equity companies for credit cards, personal loans, lease-to-own, auto loans, mortgages, and insurance for prime and sub-prime borrowers.
Currently Mr. Slavik is an independent financial services consultant for private equity firms and a contributor for expert networks such as GLG, Guidepoint, and Level company amongst others.
