The ABCs of a lease takeover

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When you perform a lease takeover — also called a lease swap, lease transfer or lease assumption — you’re getting the car plus all the conditions that came with the original lease. You don’t get to renegotiate the monthly payment or anything else, and your credit score will have to be good enough that the lease company will accept you.

The first step to figuring out whether you’re getting a bargain is to know the lingo. These are the key words and phrases you’ll need to know:

  • Term: The length of the contract with the original lender. You’ll be picking up the remaining months.

  • Residual value (RV): Established at the start of the lease, this is the value of the car at the end of the term. It’s the remaining price of the car if you’re interested in buying it, so sometimes you’ll see the RV listed as the “purchase option at the end of the lease.” Higher monthly payments contribute to a lower RV.

  • Market value (MV): This is the value of the car if it was sold privately. If the RV is higher than the MV, you might as well buy the car on the open market. If the RV is significantly lower than the MV, you could be getting a great deal — potentially good enough to sell the car at a profit.

  • Kilometre limit: Because a lease is just supposed to pay for the depreciation of the car, contracts cap your mileage to ensure you don’t run it ragged. Your cap might fall in the range of 20,000 to 24,000 km per year, though some are as low as 16,000 km. If you don’t stay within the limit, you risk costly fees.

  • Wear and tear: Like car rental agencies, leasing companies will check the condition of the car at the end of the term. Most contracts will allow for some normal wear and tear, but bigger dings and issues will cost extra to repair.

  • Transfer fee: The leasing company may charge a fee to transfer the contract to you. Make sure you determine ahead of time how much it will be and who is paying for it.

How a lease takeover can save you money

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  • You won’t need a down payment or security deposit, since the seller would have already paid when they started the lease. However, if the car is in excellent condition, the seller may ask you for money to try to recoup their losses.

  • The monthly cost of a lease is usually lower than buying and financing the same car.

  • A takeover keeps you on the hook for less time than a regular lease, making it ideal for car junkies who want to try a new ride every few years or a cautious owner who wants a lengthy test drive before making a commitment.

  • If the MV is higher than the residual value RV, buying it from the lease will be cheaper than buying the same car from your brother’s best friend (and nix the hassle of mixing business with friendship). Need extra cash? You can also sell the car and keep the potential difference.

  • Motivated sellers will offer cash incentives and other bonuses. Some lease-swapping sites list incentives as high as $10,000.

How to get a good deal on a lease takeover

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First off, ensure the kilometre limits match your needs. For casual drivers, enough mileage for errands and the occasional road trip will do the trick, whereas full-time commuters will need a lot more. Exceeding the contract’s limit will bring costly penalties, but remember that cars with higher limits may have higher monthly payments to match.

Second, find a car that hasn’t been pushed to the limit. For example, if you’re eyeing a one-year-old ride with an annual cap of 20,000 km, choose one that’s been driven a lot less than 20,000 km to win the difference.

Then check the car for damage, such as noticeable dents and scratches on the exterior, cracks or stars on windows, excessive wear to the tires and stained or ripped upholstery. If it’s anything but mint, know that you’re probably paying for it when the lease ends. Some mechanical problems might be covered by the manufacturer’s warranty, but the best practice is to ask for cash to cover anything cosmetic.

Confirm any hidden costs, such as a turn-in or lease transfer fee. It’s worth asking the seller whether they’ll cover it.

Lastly, look into the car’s history. If it’s been through any accidents, ensure the damage was properly repaired — and ask for a big incentive to take on the risk. To ease your conscience even more, book an inspection and bring along a lease takeover checklist you can find online.

Is a lease takeover right for me?

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If the detective work sounds too onerous, you may want to stick to more common methods.

Look for a slightly used car, like a dealer’s showroom model, which is generally a good score with its low mileage and up-to-date maintenance. And when it comes to affording a new car, there’s always wiggle room for negotiation. Keep an eye out for manufacturer’s incentives, rebates and zero-percent financing.

Everyone’s needs are different, and so is every car and contract. But if you do your homework, you may find a lease takeover will let you drive a great car for a low price with little commitment. The seller won’t be the only one thanking their lucky stars.

About the Author

Juliette Baxter

Juliette Baxter

MoneyWise Contributor

Juliette Baxter is a writer and editor who has covered everything from designer runway trends to RESPs for publications such as Chatelaine, Flare and The Globe and Mail. She also strategizes words and ideas for leading brands including Birks, RE/MAX and Shoppers Drug Mart.

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