If you’re looking for your next car, a lease takeover is one option you might not have considered. Lease takeovers can potentially save you money but it’s important to understand how they work. This guide explains the details of lease takeovers in Canada.
IN THIS POST, WE COVER:
- What is a lease takeover and how does it work?
- Lease takeover benefits
- Potential drawbacks of a lease takeover
- Is a lease takeover right for you?
Car ownership has its perks but leasing also offers certain benefits. If you want a shortcut to leasing, you might consider a lease takeover. This type of arrangement can help you get a deal when leasing a vehicle, if you’re reading the fine print. If you’re not familiar with the concept of a lease takeover, this primer covers everything you need to know.
What is a lease takeover and how does it work?
A lease takeover offers you an alternative to traditional car leasing. Rather than signing a new lease with a dealer, you’re agreeing to take over a lease from someone else.
Here’s how it works. The original leaseholder wants to get out of their lease early. Rather than terminating the lease and potentially having to pay a penalty for doing so, they transfer their lease to someone who agrees to finish out the lease term.
When you agree to a lease takeover, you’re agreeing to the lease condition and the vehicle condition as-is. That means you would be subject to any rules, restrictions or guidelines spelled out in the original lease, as well as the current lease payment.
There are a few key terms to know if you’re considering a lease takeover in Canada. The most important ones to be familiar with include:
- Lease term. This can refer to the length of the original lease contract. As the person taking over the lease, you’re responsible for fulfilling the remaining term. So if the original lessee had an 18-month lease and you take over after 12 months, you’d only be in the lease for the remaining 6 months.
- Residual value. Residual value means what the car will be worth at the end of the lease term. You’ll want to know this number if you think you might want to purchase the car from the leasing company once the term expires.
- Market value. Market value means what the car could be sold for to a private buyer. This number may be the same as residual value, higher or lower, depending on the vehicle’s make, model and condition at the end of the lease.
- Transfer fee. While a lease takeover could possibly save you money when leasing a vehicle, there may be an upfront cost. The leasing company could charge a transfer fee to complete the takeover and reassign the lease to you.
- Kilometre or mileage limits. One of the central features of any car lease is a guideline for the maximum number of kilometres or miles you can log on the vehicle. If you exceed the limit, you may have to pay the leasing company an extra fee.
- Wear and tear. Another important component of a car lease specifies how much wear and tear is considered normal for the vehicle. Just like going over the specified mileage limits, you could also be charged a fee for any wear and tear the leasing company deems excessive.
All of these things should be spelled out clearly in the lease agreement. It’s a good idea to review this document carefully and ask the leasing company to explain any terms or phrasing you don’t understand. This can help you avoid any surprise penalties or fees once the lease expires and it’s time to either return or purchase the vehicle.
Lease takeover benefits
There are several advantages associated with taking over a lease versus getting a brand-new lease or purchasing a vehicle. Here are some of the primary benefits you might appreciate:
- Potentially lower payments. Taking over a lease could yield lower monthly payments, compared to financing a new or used car purchase. A lease takeover may be more financially-friendly if you need a vehicle but you’re working with a smaller budget.
- No down payment. Another nice feature of a lease takeover is not having to put money down. While there may be some costs involved, such as the transfer fee, you can generally take over a lease with less cash out of pocket compared to buying.
- Resale potential. If the lease you’re taking over includes the option, you may be able to purchase the vehicle at the end of the lease term. If the market value is higher than the residual value, you could then turn around and sell the car to pocket some cash.
Potential drawbacks of a lease takeover
While a lease takeover could be a good way to save money when leasing a car, there are some downsides to keep in mind.
- Kilometre limits. This has already been mentioned but it’s worth pointing out again. If you drive fairly often for work or you take frequent road trips, it’s possible that you could exceed the mileage limits allowed by the lease terms. If you end up paying a fee at the end of the lease term to cover excessive mileage, that could negate some of the money you saved by having lower payments and no down payment.
- Wear and tear limits. What you might think of as normal wear and tear might be excessive to the leasing company. You might be asked to pony up a fee when turning in the vehicle if its condition isn’t up to par with their standards.
In addition to these things, you should also be mindful of any hidden fees buried in the car lease contract. The transfer fee is one to watch out for but you could also be charged a fee on the back end when you turn the vehicle in. If the lease contract isn’t transparent when it comes to fees, ask the leasing company exactly what you’re responsible for paying and when. And if they’re reluctant to share those details with you, that’s a red flag that you may want to consider a lease takeover elsewhere.
Is a lease takeover right for you?
A lease takeover may be appropriate for some drivers but not others. If you like the ability to change up vehicles fairly often and you don’t want to go through the process of applying for a loan, then taking over a lease could be ideal. On the other hand, if you’d prefer to stick with the same vehicle for the long haul or your normal driving habits keep you on the road regularly, then buying a vehicle could be the better choice.
At Birchwood Credit Solutions, we want to help you make the best car-buying decision for your needs. To do that, we offer financing solutions for buyers from a wide variety of credit backgrounds, including individuals who are new to Canada and have yet to establish credit, as well as those who are rebuilding credit after bankruptcy. Browse our extensive inventory of vehicles online or start the financing process by completing our quick and easy loan application.