Car Leasing 101 - What is Car Leasing - Common Questions

Can I Get Out of a Lease Before the Agreement is Expired?

Riding out your auto lease till the end of the agreement is not always the final option. Many people find they can lease a vehicle today, but month’s later personal obligations pop up, which results in you not being able to afford the full lease period. For example, you decide you want to purchase a home, a new born enters the family, relationships split up, going back to school, etc. Anything can happen between the time you sign the lease agreement and the time it expires. So a great alternative is finding someone else to swap or break or bust or take over your lease agreement, otherwise you may end up paying an extremely large penalty for defaulting on your lease. This is known as car lease assumption on a short-term basis, an alternative you may want to consider rather than getting into a new lease. We’ll tell you more about breaking or swapping a lease with anther consumer later in this guide.

Vehicle Lease Pricing

Anytime you opt to lease a vehicle from a dealership, ALWAYS remember you have the option to negotiation the price. It’s the same as if you were buying the vehicle; you have the option to negotiate.

Some dealers may state because the vehicle is a lease that they cannot come down on the sticker price of the car. Not true. The only time a dealer may not be able to come down on price of a vehicle lease is if the vehicle is already being offered as a special deal or promotion. It’s important you negotiate the price of the lease since the final price of the vehicle lease will be the deciding factor of how much pay each and every month until your lease agreement is over.

Who is the Leasing Company? – It’s not the dealership?

Once you’ve negotiated your deal, worked out your payments on your car lease calculator and signed the lease agreement, the dealer works on behalf of a leasing company to finish the deal. Yes – the dealership is not the leasing company, the dealership works on behalf, like an agent, for the leasing company. Once you begin making payments on your lease, your dealing directly with the leasing company, not the dealership you leased the vehicle from.

The dealership simply is the medium to lease out the vehicle on behalf of the leasing company. Their function is to promote the car lease options, negotiate the lease deal and work out the terms of the lease agreement – all on behalf of the leasing company.

This is where it becomes interesting where many consumers don’t realize who they’re directly dealing with once they’ve signed the lease agreement. The consumer, you, will deal directly with the leasing company once you’ve signed the lease agreement.

So who are the leasing companies? Leasing companies used by dealers are usually subsidiaries of the car manufacturer (called "captive" leasing companies), such as Ford Motor Credit or General Motors Acceptance Corporation (GMAC) banks, credit unions and other lending institutions with whom the car dealership has worked out mutually beneficial business terms. Always check first with the dealership which leasing company the work with.

So remember, automobile dealers are in the business of providing cars, trucks, vans, bikes, SUV’s, etc.; leasing companies, banks, and credit unions provide the leases.

Can I Avoid the Middleman and Save $$?

You got it. You have the option to avoid the middleman, the dealership, and go directly to the leasing company, bank or leasing institution. The dealer is only a medium to sell a car lease. Generally a leasing company, bank, credit union or other leasing institution can offer better terms and price than the dealer.

The disadvantage to approaching lease companies and skip the dealer, is that sometimes the lease company will provide the dealership special promotions and prices to move the vehicles off the lot. As well with a dealership you have the convenience of managing all negotiating, the paper work, test drive, etc. all in one location. So essentially you may realize incentives with the dealer than if you dealt directly with the leasing company.

What Happens at the End of My Lease?

Simple put, at the end of your vehicle lease you drive your vehicle back to the leasing company. Hopefully the vehicle is in normal condition of wear and tear or you’ll end up paying for any damage or extra mileage over and above what you specified in the lease agreement.

Vehicle lease companies sometimes provide the option to purchase the vehicle for a specific price and the end of the lease agreement. This can be an option, but always check first as with some companies, it’s not outlined in the lease agreement or contract. Alternately you may be able to use the vehicle as a trade-in against a new car if you were to purchase. If buying out the vehicle or trading in the vehicle is not ideal for you, then simply drive your vehicle into the lot at the end of the lease agreement and you can walk away clean free. However, before you simply walk away, ALWAYS check first if you still have any equity value left in the vehicle.

Remember, to ensure you get best value as a consumer, ensure you check each option when returning your vehicle to get out of your car lease. The important options and lease considerations when completing your contract, or breaking your car lease, are…

• When returning the vehicle at the end of the lease agreement, ensure your vehicle has normal wear and tear, otherwise any damage you may have to pay the lease company.
• You may have the option to buy-out the vehicle from the lease company so that you own the vehicle 100%
• You may have the option to trade-in the leased vehicle against the purchase of a new vehicle
• When returning your vehicle at the end of the lease, always check for extra equity value.
• You do have the option to get out of your lease early – such as break your vehicle lease, swap your vehicle lease, bust out of your vehicle lease or trade your vehicle lease to another individual who is seeking to get into a lease deal, but not for the full term. This option is known as a short-term lease assumption and may not be presented to you by the dealer, but is available. More on transferring your car lease (define: auto lease transfer) further on in this guide.

Part II: Car Leasing vs Buying