Car Lease Takeover's in Canada
If you’re someone who wants a newer vehicle but doesn’t want to lease or finance a car from a dealership, you may want to consider doing what’s called a “lease takeover”. Lease takeovers can be a great way to save money on a car lease if you find one with the right terms and conditions. In order for you to take advantage of savings from a lease takeover, you need to understand how they work and the risk involved with them. In this article, we’ll explain what they are, how they work and the pros and cons of lease takeovers.
What is a Lease Takeover?
A car lease takeover means taking over someone else’s lease on a car. Rather than getting a new lease from a dealership, you find someone who is trying to get out of their current lease agreement, and you take over the lease from them.
Typically, if you cancel your lease, you will be penalized. So the original leaseholder who no longer wants the lease will try and find someone else to finish the term so they can avoid being penalized. When you take over someone else’s lease, you’re accepting all the conditions and rules that were subject in the original lease agreement.
Six Terms You Need to Understand Regarding Lease Takeovers
Lease Term: This is the length of the original lease term. If the term was 24 months and you take over after 12 months, you’ll need to continue paying the lease for the remaining 12 months of the term agreement.
Residual Value: The residual value is what the vehicle will be worth at the end of the term. If you decide you want to keep the car, this is the amount you’ll have to pay to own it. Before agreeing to a lease takeover, make sure you have the option to either return the vehicle or pay to keep it.
Market Value: This is the value of the vehicle if sold privately. This amount may be the same as the residual value or could be more or less than the residual value.
Transfer Fee: This may or may not be part of the lease conditions, but you may have to pay a fee to complete a lease takeover.
Mileage/Kilometre Limit: With vehicle leasing, expect there to be a limit on the number of kilometres you’re able to put on the vehicle annually. Typically this number is around 20,000 to 25,000km and if exceeded you will be charged an extra fee.
Wear and Tear: This is the amount of wear on the car the leasing agency considers acceptable by the end of the leasing term. Any wear and tear that is considered more than normal will be subject to a fee.
The Pros of Lease Takeovers
Lower Startup Costs: With lease takeovers, you don’t need to make a down payment and typically the transfer fees are low.
Lower Monthly Payments: If you decide to lease a car, your monthly payments will be much smaller as you’re only paying for the depreciation of that vehicle and not for the ownership of the vehicle.
Lease Incentives: Depending on how desperate the seller is to transfer the lease, you may be able to get extra incentives for taking over the lease.
Resale Potential: If by the end of the lease term you buy the car out and the market value is more than the residual value, should you choose to sell the car, you could make a profit.
The Cons of Lease Takeovers
Mileage/Kilometre Limit: If the leased vehicle that you’re taking over exceeds the annual kilometre limit, you would be responsible to pay the fees for exceeding that limit. Consider how much you plan to drive the vehicle and if you think keeping the vehicle under 20,000-25,000km is manageable or not.
Transfer Fees: While this is still better than making a hefty down payment on a car, there will most likely be a transfer fee associated with completing a lease takeover.
What is Considered “Normal” Wear and Tear: Before you agree to a lease takeover, carefully check the original lease agreement to see what the leasing agency considers reasonable wear and tear. If you skip this step, you may have to incur the costs of what you perceive as acceptable wear and tear, but the agency considers excessive.
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