What is a Vehicle Lease?

Key Car Hand

A vehicle lease is almost like renting a car for a fixed period with the option to buy it out at the end of the term. There are specific conditions that come with a vehicle lease, such as:

  • Essentially, the lessee is paying to use the vehicle as opposed to buying the vehicle.
  • A vehicle lease is a contract between a leasing agency and the lease buyer.
  • There are certain terms and conditions laid out in the contract that both parties agree to.
  • At the end of the lease, the lease buyer has the option to either buy out the vehicle at the cost set out in the agreement or hand the vehicle back into the leasing agency.
  • Leasing a vehicle is a more affordable way to drive a new vehicle. If the lease owner decides they want to get out of the lease early, they may have the option to enter into a lease takeover.

What is a Lease Takeover?

signing lease documents

Essentially a vehicle lease takeover involves the transfer from the lease seller to the lease buyer. This typically happens when the lease seller wants to get out of their lease early. The lease seller is looking for a lease buyer to take over the lease contract and the vehicle for the remaining term of the lease. This releases the lease seller from the contractual obligation. Purchasing a lease takeover can be the cheapest way to obtain a vehicle, depending on the terms of the lease.

Why is a Lease Takeover a Better Option for Some People?

Option Decision Consideration

Lease takeovers allow the driver to have a newer vehicle without the hefty monthly payments of a loan. Typically lease payments are much lower than new-vehicle loans. This allows people to drive luxury vehicles at a fraction of the monthly cost.

Terms of a Lease Contract

Before someone decides to purchase a lease takeover, they should become familiar with the terms of the lease. Below are some key terms a buyer should be aware of.

Residual Value

This is the value of the vehicle at the end of the term of the lease. Typically at the end of the term, there is an option to buy out the vehicle at the residual price or to hand the vehicle back into the dealer.

Market Value

This is the value of the vehicle if it were to be sold privately. This value may be higher or lower than the residual value.

Terms

This identifies the length of the lease, and the lease buyer will agree to the remainder of the lease terms.

Kilometre Limits

This is very important, the original lease agreement will set a limit of kilometers allowed over the term of the lease. If the lease owner goes over the limit, they will be required to pay additional costs, which are identified in terms of the lease. This can become quite costly.

Transfer Fee

Depending on the original lease contract, there may be a fee for transferring the lease from the seller to the buyer.

Wear and Tear

The leasing company determines what kind of deterioration or damage is normal during the term of the lease. If there is deterioration or damage beyond these limits, the lease owner will be required to pay for the required repairs.

Benefits of Lease Takeovers

Legs Window Car Dirt

As a lease takeover buyer, there are some great benefits. Below you will see what some of the benefits are.

Lower Start-up Costs

With a lease take over, there is no down payment required, making start-up costs much lower.

Lower Monthly Payments

The advantage of leasing over purchasing a new vehicle is the low monthly payments. When a vehicle is leased, the lease owner is paying only for the depreciation of the vehicle.

Incentives

If the lease seller is motivated to get out of their lease early, they may offer incentives to the lease buyer.

Market Value Versus Residual

The lease buyer may be able to sell the vehicle for a profit if the market value is higher than the residual value at the end of the term if they choose to buy out the vehicle.

The Risks of a Vehicle Lease Takeover

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When deciding on a vehicle lease takeover, it is very important to read and understand all the terms of the original lease as there are some limitations. The buyer should make sure the seller has not already exceeded some of the limits. Three areas of the lease contract the buyer should focus on are:

Kilometre Limits

Leasing agencies set their own kilometre limits averaging 25,000 kilometres per year in Canada. When a buyer takes over a lease, they are responsible for any over the limit fees. The optimum lease takeover would be a vehicle that has less mileage than the yearly estimates. It is important to ensure there are enough kilometres left to take the buyer to the end of the term without going over the limits.

Restrictions About Wear and Tear

The lease buyer should carefully review the terms of the lease about normal wear and tear. If the vehicle appears to have extensive wear and tear, stay away from the lease takeover, as the buyer would be responsible for repairs. Body damage over a 2-inch diameter, bad colour matches, scratches, sanding marks, and bumper damage would be considered excessive wear and tear.

Lease Transfer Fees and Vehicle Turn in Fees

When reviewing the terms of the lease, always look for hidden costs such as Turn in fees and Lease transfer fees. Ensure there are no outstanding toll charges or unpaid tickets on the vehicle as the buyer may be required to pay these.

Note: Always obtain a car history before buying the lease.

A car history will provide the buyer with details about any accidents or repairs the vehicle has had. It is also a good idea to have the vehicle inspected by a reliable mechanic before signing a takeover agreement.

Conclusion

A lease takeover may be a great option to obtain a newer vehicle at a lower monthly payment, provided the vehicle is still within the perimeters of the agreement and will not incur any additional fees.