How Car Lease Swaps Work

What to Look for With Lease Takeovers

A couple checking out a car's interior
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A car lease swap, or transfer, is a transaction in which a vehicle that is subject to an auto lease is transferred from the current driver to a different driver. Along with taking on the running costs of the car, the new driver takes over the lease on the same terms as the original owner. This includes making the same monthly payment for the remaining duration of the lease and ensuring that the vehicle is returned in an appropriate condition.

People might look to transfer a lease because their financial situation has become more difficult, they have had a change in family circumstances, or they simply want to buy or lease a different car. Whatever the reasons, here is how these transactions usually work, along with the pros and cons of lease swaps.

How to Swap a Car Lease 

If you are in a lease that you'd like to transfer it to someone else, your first step should be to confirm with your finance company that it is possible. You should also ask if the company charges any fees for lease transfers, as these are not uncommon.

Once you have confirmed the lease can be swapped, it's your responsibility to find someone to take it over. The simplest scenario is to find a friend or relative who is happy to take on the lease. but you can also advertise online or elsewhere. Sites that specialize in lease swaps can match up suitable buyers and sellers and provide you tools to calculate the costs associated with the specific transfer.

When you have a potential buyer, the finance company will run a credit check on them and confirm that they are able to afford the monthly payments. Assuming that their credit rating is high enough, they will be able to take over the lease on the same terms and the same interest rate as you. Once the buyer, the finance company, and you are all happy with the arrangements, you can complete the paperwork to formally transfer the lease.

If someone transfers their lease to you, you will probably need to visit your state's department of motor vehicles to transfer the registration to your name and possibly get new license plates.

Factors to Consider Before Taking Someone's Lease

Before you take over someone's lease, you should investigate a few critical factors that could drive up the cost.

Mileage

Most leases specify a mileage cap, which is the maximum number of miles a car can be driven during the life of the lease. The lease agreement will specify a fee for each mile over the limit. With a typical cost of 15–20 cents per mile, those extra miles can get expensive. Before taking on someone's lease, be sure to check the mileage limit and the current mileage on the car to assess whether you're likely to exceed the cap during the remaining lease term.

If you're worried you will exceed the mileage limit, you may be able to negotiate with the current leaseholder. Many lease owners may be willing to offer a cash incentive to help cover the costs if the car already has high mileage.

Vehicle Condition

Another standard lease requirement is that the vehicle must be returned in reasonable condition at the end of the term. When a car is returned, the dealer will carefully check it over and charge any damage to the leaseholder.

Be sure to thoroughly review the condition of the vehicle and the lease's definition of "reasonable condition" before you accept ownership. This may include, for example, no scratches above a certain size, or a minimum tread depth on the tires. Some of these things can be hard to spot, so it is always worth having a trusted mechanic check over the vehicle to make sure it's in good structural and mechanical condition.

Many leases also require cars to be maintained and serviced on a regular basis. Failure to do so may invalidate the warranty on the car. New drivers should ask for proof that the required services have been completed, particularly if the lease is being sold because the driver cannot afford the repayments.

Sometimes cars are involved in accidents and then patched up before the lease is transferred to an unsuspecting driver. It's wise to purchase an independent report from sites such as Carfax.com or AutoCheck.com, which will reveal if the car has ever been involved in a serious accident.

Other Costs of Lease Transfers

In addition to the obvious costs of the monthly payments and putting fuel in the car, there are other expenses to consider before taking on a lease swap. Some states tax lease transfers just as they would a sale. Check with your state to see if this applies, how the tax is calculated, and when payments are due.

Insurance can be another significant cost. Finance companies generally require that any leased vehicle has, at the very least, comprehensive and collision coverage. Furthermore, most states require you to hold personal liability coverage.

Benefits and Disadvantages of a Lease Swap

There are advantages and disadvantages to taking on a car lease swap, depending on your situation.

Advantages
  • Lower payments than buying new

  • Good deals due to possible seller motivation

  • Short-term commitment

  • Lower miles than buying a used car

Disadvantages
  • Limited savings compared to leasing new

  • Higher costs due to possible undetected damage/issues

  • Increased cost due to state sales tax, if applicable

  • Low-mileage swaps difficult to find

Benefits Explained

  • Lower payments than buying new: A car lease swap is a way of being able to drive a vehicle you otherwise may not be able to afford.
  • Potential good deals: Many of those looking to sell their leases need to rid themselves of the lease as quickly as possible for financial reasons. Sellers may offer incentives such as a cash payment and covering the transfer costs.
  • Short-term commitment: Leases usually last two to four years, so a lease swap will be for even less time, allowing you to try out a car without making a big commitment.
  • Lower miles than buying used: Because leases have mileage restrictions, you will typically get a car with fewer miles than you would if you bought a used version of the same car.

Disadvantages Explained

  • Limited savings compared to leasing new: You will typically take on the same costs as you would entering a new lease, just for a shorter period.
  • Potentially higher costs due to undetected damage: If you don't do your homework to detect any possible issues with the car, you'll be on the hook for damage done by the previous leaseholder.
  • Costs of sales tax: Depending on your state's laws and how sales tax is calculated, these costs can be hefty.
  • Low-mileage swaps are difficult to find: Mileage limits are fairly tight on leased vehicles, so you may have a hard time finding one with many miles left for you to take over.

Article Sources

  1. Insurance Information Institute. "Understand Your Car Insurance Obligations for a Leased Vehicle." Accessed Sept. 21, 2020.

  2. Insurance Information Institute. "Automobile Financial Responsibility Laws By State." Accessed Sept. 21, 2020.