Can you dish out some advice on the steps to take in preparation of returning a lease? In particular, I am looking to find out:
- Should I get my car painted to remove all the scratches and little dimples because the dealer will charge me more for that?
- Can I get an extension on my lease if the car I want isn't ready yet?
- How many months prior to lease will the dealer sell me a new car and let me out of the lease obligation for the old one?
- What leverage do I have in terms of negotiating with that same dealer on a newer model?
- Adam
At the end of the lease, if the lessor is not satisfied with the condition of the vehicle, you can be penalized, so you are wise to know your terms and prepare early.
There are two lease types. In an open-end lease, the customer agrees to an end value (also called residual) for the vehicle, and is responsible for any loss or gain upon disposal of the vehicle. Closed-end leases, on the other hand, look more to the condition and kilometres of the vehicle as defined in the terms of the lease. Normal wear and tear and an annual kilometre allowance are typically acceptable. A penalty for excess kilometres or charges for required repairs can, and likely will, be billed to the customer.
Should you paint your car and have body scratches or dimples removed because the dealer might charge you? Well, that depends.
Most manufacturer lease programs are closed-end leases, and require scratches and small dents to be either repaired or charged upon return of the vehicle. Some leasing programs, such as Volkswagen Canada, send a package to the lessee before the end of the term which outlines the acceptable size of scratches or dents.
If you have an open-end lease, it comes down to the current market value of the vehicle versus the residual value. The selling value will be less with paint imperfections, though if the residual value is lower than the market value, you'll have positive equity in the vehicle and may owe nothing.
Depending on your lease conditions, you might discover that you do need to repair damage before the end of your term. There are several organizations which conduct cosmetic and mechanical inspections, and provide you with a laundry-list of deficient items. The dealership may also help you inspect for anything you could be charged for at the end of the lease.
If your vehicle isn't in prime condition to return at the end of the lease term, or your next car isn't ready, can you get an extension and buy some time?
"This is specific to the contract signed, and the lessor. At auto|ONE **autoone.ca**, in extreme cases, we may allow the lessee to go over their expiry date on a month to month rental basis, so long as they make their payments and work with us to determine a fit solution. We have options where they can buyout the vehicle, extend their current lease on a new term, or services where we will source out the next vehicle they desire for a new lease - so long as they don't abuse this right and go month-to-month for too long," says Erich Schmidt, Managing Director of auto|ONE Leasing in Vancouver.
So, what if you need to switch on short notice from a two-seat bachelor-mobile to a five-seat family sedan? How many months prior to the end of your current term will a lease company or dealer sell you a new lease, and let you out of the obligation for the old one?
"It's not usually feasible to opt out of your lease until after the halfway mark of your term (i.e., 25-47 months of a 48-month lease). This is very common practice as some people decide they want to change their vehicle to suit a changing lifestyle. The lessee is contractually bound until the end of the term but there is always a buyout during any time of the lease; so long as this number is paid off, the lease can be broken. What typically happens is a market value is compared to the buyout value, and any positive or negative equity is rolled into the price of the next vehicle and a new lease is formed," says Schmidt.
Alternatively, you might be able to find someone to take over the remainder of your lease. LeaseBusters and other organizations specialize in marketing vehicles for those who want out of their lease, and attracting buyers looking for shorter-term commitments.
When the time comes for a newer model, what leverage do you have if you choose to negotiate with the same lease company or dealer?
As Schmidt says, "Customer retention is highly valuable to the lease company, thus the negotiating leverage is high when dealing with the same dealer or lease company. They know your payment history, and if you've been in good standing, your next lease approval is a cinch."