Ryan Wirtz was looking for a way out of his auto lease on a 2011 electric blue Dodge Ram.
He signed the lease in June last year when his employer got rid of its company cars and required employees to get their own. But now he has a new job that provides a car, leaving him stuck with a three-year lease and a truck he no longer drives.
"I had the car for six months, got a new job and the new job says they will give me a car," said the 36-year-old Valencia resident who works as an industrial safety expert.
Anyone who has tried to terminate a car lease knows it can be complicated and expensive. Leasing is not the same as renting and a contract cannot be ended simply by returning the car. To break a car lease means breaking a financing contract, which results in a loan default and is extremely negative for a credit rating.
But Mr. Wirtz was able to find another buyer to assume the remainder of his car lease, which took him off the hook and allowed the buyer to avoid coming up with a downpayment. The transfer was made possible by company called Swapalease, one of several firms that specialize in helping car lease owners find people interested in taking over the payments.
While there is a fee involved in transferring a lease through Swapalease -- $59.99 for the buyer and $79.99 for the seller -- it's far cry from the potential thousands of dollars it might cost to break a lease.
According to Dave Shannon, general manager at Jim Shorkey Suzuki in North Huntington, a lease owner who breaks a three-year lease after six months on a vehicle with a $300 monthly payment would owe the dealer $9,000 in payments and about $10,000 in residual value, which is the approximate value of the car at the end of the lease.
"Typically six months into a three-year lease, the lease owner will not be in a positive position," Mr. Shannon said. "It all depends on how they get into the first lease. They could have had a positive trade-in with a big downpayment or a negative trade-in with a smaller downpayment."
He pointed out, however, that the more expensive the car is, the more difficult it will be to break the lease because lease owners also must pay for the car's expected depreciation. A 15 percent depreciation fee on a $50,000 car will naturally cost more than 15 percent depreciation on a $20,000 car.
Millions of drivers are lured into car leasing because of the low monthly payments compared to a traditional car purchase. Vehicle leasing also can be attractive to people who like to drive late-model vehicles. But life events such as a new child, marriage, job transfer and income changes can prompt car lease holders to look for a way out of the contract.
According to market data compiled by Edmunds.com and Truecar.com, it is estimated that roughly 25 percent of all car sales are done as leases. With 14.2 million car sales expected in 2012, that equates to 3.6 million lease contacts this year alone.
It is also estimated that about half of all lessees look to terminate their contracts early.
In addition to Cincinnati-based Swapalease, which was founded in 1999, other major players in the car lease transfer business include Leasetrader and AutoLeaseBreakers.
Scot Hall, executive vice president of Swapalease, said the company has about 5,000 nationwide listings at any given time and is on pace to do 8,000 lease transfers in 2012.
The owners of Swapalease run a large network of dealerships in Cincinnati. The idea for the company was born on the showroom floor as the dealership owners grew weary of turning away customers who could not get out of old leases to buy new cars.
"The Joseph Auto Group of Cincinnati was on the forefront of automobile leasing," Mr. Hall said. "They knew lease transfers could be done, but very few people knew that or how to do it. That was right after the dot.com boom. They decided to create a marketplace online to help educate people on how to do it. That is really the genesis of Swapalease.
"Once people get a taste that you can do this, we get a lot of repeat business," he said. "They've figured out that they can drive a car for a year or two and get a new one."
In Mr. Wirtz's case, the Dodge Ram with 15,000 miles on it was sitting in the garage while he continued to make monthly payments. That's when he did an online search and found Swapalease. It didn't take long for the truck to catch someone else's eye.
The new buyer took over his payments after getting approval from the company that leased the Ram to Mr. Wirtz. Legally, Mr. Wirtz is off the hook once the lease is transferred to the new owner. His credit would not be affected if the buyer fails to make his payments.
It is also possible to do lease transfers through sites such as Craigslist, but Mr. Hall says lease owners and buyers who opt to use the free classified ad website may save some money but are on their own in working out the logistics and legal issues.
"The lease itself is not rewritten," Mr. Hall said. "The buyer simply picks up where the seller leaves off. It does require a credit check, but that is done by the company holding the lease. Getting out of a lease through a lease transfer is by far the most cost-effective way to exit a lease. Moreover, it creates a great opportunity for the lease buyer as well.
"The lease buyer doesn't have to commit themselves to such a long lease contract and they may be able to take advantage of someone else's original downpayment or trade-in."
Tim Grant: email@example.com or 412-263-1591