Want Out of Your Lease? Head for the Web

Sites link sellers and buyers and do the paperwork

It worked for a while, that trusty Volvo S80 that Christopher and Susan Torre leased when they had only one child. But when the twins came along two years later, the Middletown (N.J.) couple decided it wasn't big enough. "It was wall-to-wall kids in the back seat," says Susan. "A minivan made much more sense."

Trouble was, the Torres had another year and a half to go on the Volvo's four-year lease. They didn't want to take on an extra car payment or spend the thousands of dollars it takes to get out of a lease early. Instead, they listed the car on LeaseTrading.com, where Doug George found it. The Booneville (Miss.) financial planner took over the monthly payments, and the Torres bought a brand-new Chrysler minivan.

In the past year or so, a handful of Web sites have sprung up to make a market in car leases (table). For a fee, LeaseTrading.com, LeaseTrader.com, and Swapalease.com match buyers and sellers. More important, they take care of all of the paperwork, such as the credit check and new lease documents that leasing companies require. The market is still tiny, though. For one thing, some leasing companies won't let you transfer a lease or hold you liable to the end of the lease if you do. Others levy fees on top of the sites' fees.

Still, these sites solve a big problem for lots of people. Nearly half of all new car buyers who lease end their contracts early. Want next year's model? No problem--if the lease is held by the auto maker's finance arm and you have only a few months to go.

But if you have six months or more left, you're out of luck. Yes, you can buy your way out of a lease, but you'll have to shell out the difference between what you've already paid and the current value of the car. That's almost always a huge penalty because leases (and car loans) assume that cars depreciate as a fixed percentage of the sales price each month, while anyone who has ever driven a new car off a dealer's lot knows that bulk of the depreciation actually occurs early in the car's life.

That's what Nancy Carmichael discovered when she wanted to trade her 1999 Mercedes-Benz for a new Jaguar. Dealers told her she'd still owe $4,500 to $6,000 over the car's market value. In the end, Carmichael, operations director for a California real estate developer, paid LeaseTrading.com $39.95 for the listing and $298 for the transfer and paid the buyer $1,092, subsidizing the remaining payments. "That's a third of what it would have cost me," she says. Her buyer was happy, too, driving off in a Mercedes-Benz C230 for what works out to $325 a month for the next 15 months. Buyers like these deals: They get a car with a short-term lease and no downpayment, and leased vehicles are often in better condition than most used cars.

Still, if you're planning to take over a car lease through these sites, do your homework. Check the value of the car on Edmunds.com or kbb.com. Demand that the seller show you a copy of the original lease to make sure you're buying from an individual rather than a broker unloading cars from rental-car fleets. If you can't see the car, have it professionally inspected. That costs about $100 and will ensure you won't get stuck paying wear-and-tear costs when you turn the car in.

As for George, he couldn't be happier. Tired of his Lincoln Navigator, he was surfing the sites when he ran across the Torres' Volvo. After a brief negotiation, George took over the lease in March; the Torres paid him around $500 to get the monthly payment down to $380, and the parties split the $600 cost to deliver the car. "I can't see myself ever again going to a dealership," he says. George is already back online, looking to replace his $30,000 Ford Lariat pickup.

By Larry Armstrong

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