|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
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Dear Dollar Stretcher,
I would like some advice on how to sell, trade-in or otherwise get
rid of a car. I have a 2000 Toyota Camry with 53,000 miles on it.
The lease is up in 2004. The last car dealer I spoke to told me that
I needed to wait for the lease to be up in order to trade down. He
said that the difference between what I owe and what it's worth is
$10,000 and that my mileage should be okay if I move closer to where
I work. Is this person telling me the truth? Is there any other way
I can get a lower car payment or get rid of this car before 2004? My
goal is to be a stay-at-home mom to my little boy and this car
payment is stopping me.
Linda has asked a question that I get
regularly. How can I get out of a car lease? Anyone who is already
leasing or thinking about leasing should consider how they would
answer Linda's question.
Linda needs to recognize that a car
lease is fundamentally different from buying a car and making
payments. When you buy a car you own it and have agreed to pay a
certain amount for it. You can sell the car. Typically you can pay
your loan off early.
When you lease a car you've agreed to
keep it and make payments for a certain period of time. You do not
own it. So you can't sell or trade it.
A typical new car depreciates
approximately 30% in the first year. Linda's car isn't typical. It's
a high mileage car. A Camry with her mileage is worth about $8,000
less than when the car was new. She hasn't paid that much so far.
But she will before the lease is over.
A trade isn't going to help even if
she went to a much older, cheaper car. It will cost thousands to
walk away from the Camry. Unless she can pay that amount now, it
will just be added to the cost of the 'cheaper' car. The end result
would be payments that are similar to what she already has.
If Linda insists on trying to
terminate her lease, she should do it directly with the leasing
company. Involving a car dealer could cost her more.
Linda will need to read her lease
agreement carefully. Sometimes there's more than one fee or penalty
involved. The transaction charges alone could cost up to $750.
She'll want to contact the leasing
company to see what it would cost to terminate the lease early. Then
recheck their math. Mistakes are rarely in the customer's favor.
Very few leases will allow you to
turn the lease and the car over to someone else. It might be
tempting to try to do that without telling the leasing company.
Avoid the temptation. Linda could find herself financially
responsible for the other person's accident, negligence or
carelessness in using the car. If Linda did find someone who wanted
to take over the lease, she should contact the leasing company and
arrange to have them work directly with the other person.
Experts generally suggest that it's
best financially to stay with a lease until it's over. So is there
anything that Linda can do?
It's possible that the leasing
company might extend the term of the lease and lower Linda's
Moving to reduce her commute might be
a good idea, but that could be expensive. A cheaper solution might
be to find a job closer to home.
Carpooling could provide Linda with a
solution. A three person carpool could cut her commuting costs by
2/3. It would also reduce the excess mileage.
Another possibility would be for
Linda to provide rides for a couple of co-workers and charge them.
That would provide some money to help pay the monthly lease. Before
starting she should contact her insurance company to make sure that
she has the proper coverage.
If Linda's family has two cars they
might consider trading their other car for something less expensive.
Any money left over could be used to pay the monthly lease payments.
The bottom line is that it will be
very hard for Linda to stay home with her son until the lease is
over in 2004. That's sad, but it's true.
What can the rest of us learn from
Linda's experience? A car lease is very easy to get into and very
hard to get out of. When you commit to a lease you will almost
certainly pay the entire amount no matter what happens in your life.
Lay-offs, babies and medical problems will not get you out of a car
lease. Even if you don't need the car you'll continue to pay month
after month until the lease is over.
Leasing companies shout about their
'low monthly payments'. If you ask around you'll find someone like
Linda who knows just how high those payments can be.