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Ask Joanne

Pros and cons of taking over a lease Add to ...

I was going to buy a new car but a colleague at work stopped me and asked if I'd like to take over his friend's lease. It's a good deal for the same car in a 2010 model, but it sounds a bit dubious to me. I'd never heard of this, what should I be wary of? - Marko in Orillia, Ont.

Understanding the ins-and-outs of a lease takeover is one thing; whether or not leasing is even the right solution for you is another.

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If you're looking to keep a car for the long haul, leasing is probably not the best option - you'd be better off purchasing, perhaps even taking advantage of a zero per cent financing offer.

Leasing will make sense if you like the idea of switching cars more regularly, you drive for business purposes and can write it off as an expense or you always want to drive under warranty.

At the end of the agreed lease term, you do have the option to buy at the predetermined depreciated value of the vehicle, called the "residual value." If the residual is lower than the market value of the vehicle, you may even be able to turn a profit by selling it soon after a buyout.

Imagine you signed up for a 48- or 60-month lease, and you're tired of the car after 12. A finance company won't let you off the hook, at least not without a significant penalty. So what happens then? Either you accept your fate and stick it out, or find someone to take over the remaining months.

When a lease holder wants out, they will try to sell their lease privately, or through a company that specializes in selling lease returns. Leasebusters (leasebusters.com) is the largest marketplace for lease takeovers in Canada.

"When people come to us to market their leases, what I try to explain is that they have to make it a good deal for somebody else to want to take it,' says Ed Tibljas of Leasebusters in Mississauga, Ont.

"There has to be an advantage for the customer to getting this lease takeover, rather than getting a brand-new one. So it may be either a lower monthly term because the person put some money down originally, or maybe they're willing to offer a cash incentive because the payment is too similar to what a brand-new vehicle is going for. Or, possibly the person's kilometres are very, very low. In any case, there's got to be some advantage, because we're trying to market a used vehicle over a new one."

Assuming a lease takeover is the right option for you, there are some things to be wary of. Firstly, there is a transfer fee, so make sure you know who is covering that.

You'll also want to decide whether the remaining term suits you.

Leases typically also have kilometre limits. You have to examine whether a specific lease takeover will allow the kilometres you need to drive. If not, when you return the vehicle at the end of the lease period, you'll be charged for excess mileage.

"You don't want to be taking over someone else's problem. You also have to check for things such as excessive wear and tear. We recommend that people have the vehicle mechanically inspected, because you don't want to find out that next week you're due for a $500 brake job, or the tires need replacing. Warranty doesn't cover regular maintenance," says Tibljas.

If you decide that leasing works for you, and you've found a financially and mechanically sound takeover option, then why not take advantage?

E-Mail Ask Joanne at globedrive@globeandmail.com

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