70% of International Assignees Break Their Car Lease Early
(If you refer car leasing or financing options to assignees, you should read this article).
Our experience is that 70% of our expat customers break their lease early - either because they are
returning / moving earlier than expected or that their car need has changed.
Have you ever worked with an assignee who had to leave sooner than planned?
Be careful what type of car lease agreement you introduce your assignees to. If your assignees choose
the wrong type of agreement, they can end up paying thousands of dollars in contractual costs plus
penalties if they need to terminate the lease early.
What if they need to trade in the sports car for a minivan because a baby is on the way? What if they
can now afford that fully loaded luxury vehicle instead of the initial compact car? What if they need to
leave the country earlier than expected? This isn't a problem if they have an Open End Lease. If they
have signed a Closed End Lease agreement it’s a different story.
Nothing beats driving off the dealer's lot in a brand new car. Michael from Germany did that. He was in
the U.S. on assignment for 3 years. After 18 months, his company needed him to transfer to another
country and that new car needed to be returned. Thanks to Michael choosing the Open End Lease
option, his return process was smooth, quick and as his lease was built to put him in positive equity at
12 months, he even received a few hundred dollars back too. Michael was very happy with the
flexibility of the Open End Lease.
There are two types of lease agreements: Closed End Lease and Open End Lease. Closed End Lease is
what you normally see advertised on TV or online and offered at car dealerships. Open End Lease is
usually only available for businesses as they demand more flexible terms as well as larger quantity.
Open End Lease by ExpatRide
Open End Lease agreements are better suited for international professionals (expats) needs, and are
breakable at any time. It’s basically the best of both worlds - a bank loan with a residual value, making
it possible to terminate / modify the lease at any time.
Being able to easily break the lease was one of the most important features for us at ExpatRide, when
our founder, Jesper Lovendahl, set out to establish our current expat lease program. Jesper himself
started out as an international assignee in the U.S. and was faced with many of the same challenges
expats encounter upon arrival in the U.S. One of them was being caught in a Closed End Lease.
How to break an Open End Lease:
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Call the ExpatRide Personal Car Specialist and let them know when and where you want to return
the vehicle at any of the over 6,000 locations nationwide. Vehicles can be returned with a day
notice anywhere in the nation.
The Personal Car Specialist will inform you how much the vehicle can sell for. If accepted, a check
or invoice will be sent for the difference. The car can also be sold on their own if they have a buyer
who pays more.
Payment or invoice is issued in 7 - 10 business days. If the customer has moved overseas, an
international money transfer will made to any destination.
The customer is liable for the difference between the car value at time of sale and sell price:
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The car sells for more; the customer receives a check for the balance
The car sells for less; the customer receives an invoice for the balance
In average, customers receive $2,000 from the profit on the vehicle at the end of full term.
With the ExpatRide lease program, the expat customer’s down payment and monthly payments are
calculated to put the customer in positive equity at 12 months. This means in theory the assignee could
walk away from their Open End Lease agreement after 12 months at zero cost, no matter how long the
initial lease term was.
The Federal Customer Leasing Act provides a measure of protection for open-ended leases by restricting
the end-of- term liability to no more than the total three monthly payments.
Need to extend the Open End Lease? No problem, the lease can be extended as long as needed.
Closed End Lease
This is the most popular form of lease for consumers in general as it seems attractive up front. But, it
comes with some risk involved.
How to break a Closed End Lease:
If the car needs to be returned sooner (70% of our expat customers do), it’s important to have read the
small print on the back of a lease contract first.
Most people are very surprised when they learn just how much they actually owe, due to the way the
lease company calculates the early termination costs. Customers quickly learn how little of their lease
balance has been paid off, even after many months.
There seems to be a common misconception that, to get out of a lease, one simply returns the car, pays
some kind of penalty fee and it's all over. Not true.
Option 1 - Pay up to the leasing company:
Contact the leasing company to find out the early termination payoff and pre-payment penalty fee. The
amount owed will be the difference between the early termination payoff stated on the lease
agreement and the amount credited for the vehicle so far. This amount is usually substantial and
equivalent to making all the lease payments at once.
But how bad can it be to return a Closed End Lease early?
36 month lease, terminated at 16 months, @ $600 a month:
20 lease payments x $600 = $12,000.00 + early termination fee (which could be thousands)
Plus, it may have a negative effect on the credit score.
Some leasing companies may offer to pay up to $2,500 USD of the assignee’s remaining lease payments.
This is a clear indication the leasing company knows exactly how much it may cost the assignee to break
the lease as shown above.
Option 2 - Transferring the Car Lease:
The assignee can also find another buyer to assume the lease in a "lease assumption" transaction. This
transfers the contract and liability to someone else. The assignee should check with the leasing company
before pursuing this option because the new lessee may need to meet certain requirements to be
qualified to take over the lease. Expect early termination of a lease to have a negative impact on the
credit rating.
The existence of a large number “lease transfer/assumption” website services is proof of how very
costly it can be to break a Closed End Lease agreement. On these websites, desperate consumers caught
in a Closed End Lease can advertise their leased vehicles to hopefully find someone else to take over
their lease. Here are a few examples of such websites: leasetrade.com, leasetrading.com,
carleasedepot.com, takemypayments.com, pricealease.com or swapalease.com.
The assignee is now spending valuable time looking for another lessee. On average, a marketable vehicle
takes between seven and 90 days.
In order to make your lease attractive to potential shoppers, the assignee may also have to “buy down”
the payments. For example: if the assignee has 20 payments x $600 left on their lease, to make their
vehicle stand out, they might offer to put up $2,000 to effectively bring the monthly payments down to
$500. Whether the assignee will have to add incentives depends entirely on how attractive their existing
lease terms are, how badly they want out, how sought-after their car is, and how many miles they have
remaining on the lease.
The leasing company will most likely also charge a transfer fee. Fees for processing the credit application
and transfer documents vary from $100 - $1,000.
Other things to be aware of when transferring a lease:
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If there's a deposit involved, some leasing companies will simply retain the first deposit, while
others return it and ask for a new deposit from the third-party lessee.
Down payments are also up for debate. If the original lessee put down a large sum, the company
may request cash from the new lessee to offset its loss. This works if the monthly payment is low.
As for liability, some leasing companies hold the original lessee responsible should the third party
miss a payment. However, if the third-party applicant has a good credit rating - on par or better than
the original lessee - the companies will often transfer all liability.
If you want to ensure that assignees like Michael and many others like him don’t end up with a lease
term that is lacking money-saving flexibility, consider our Open End Lease program. We created this
program with only the expat community in mind, as many times we do not know what life has in store
for us.
Another benefit with the ExpatRide International expat program is the support and knowledge the
Personal Car Specialists offer assignees to maneuver the jungle known as the American auto market to
source the right vehicle new or used for the assignee.
For any questions, please feel free to contact us at [email protected], call +1 (561) 922-8922 or visit
us at www.ExpatRide.com.
Sources:
http://www.legalzoom.com/everyday-law/home-leisure/can-you-get-out
http://www.bankrate.com/finance/auto/breaking-your-auto-lease.aspx#ixzz2qyuUtLmt