Get out from under an auto lease

Preparing to drive his family down to Florida for a vacation last fall, Tony Jenkens took a long look at his Saab hatchback and knew that its time had passed. He needed a minivan.

But his first move, unloading the hatchback, proved to be more complicated than he expected.

The car was leased, with 10 months remaining on the contract. The fee to break free: $1,700, the same as it would cost him to keep the car until the end of the lease term – assuming he wanted to keep a vehicle that his family had outgrown.

Mr. Jenkens felt stuck.

Then, while surfing around on the Internet, he discovered a website that offered lease trading.

Within two days, Jenkens, a Massachusetts software engineer, found a buyer in New Jersey who was happy to pick up a late-model Saab for 10 months, taking over the remaining $170-per-month payments.

Jenkens and his buyer had tapped into an innovative marketplace in which auto leases are bought and sold.

Anyone who has leased a vehicle knows the hassles of getting out. Even if you keep the car for the entire lease, there can be big fees. Drivers face charges for exceeding mileage limits, and lease companies are notoriously picky about fees related to "excess" wear and tear.

Another common charge to watch out for: the "lease disposition fee," due if you decide not to buy the car: Often amounting to several hundred dollars, this fee may be waived by a dealer if you agree to lease another car of the same make.

Those who want to get out of a lease contract early can expect to pay plenty more. The $1,700 Jenkens would have had to pay is a bargain compared with most leases.

The general formula for early termination fees: all the remaining lease payments, plus any difference between the lease-buyout price (residual) and the car's current value, plus the lease disposition fee, plus any wear and tear, minus a little bit of interest on the remaining payments.

Often those numbers add up to as much as $5,000.

Leasing constitutes about 30 percent of today's new-car market, and financially it isn't usually as good a deal as it was a few years ago, when closer to 35 percent of vehicles were leased.

With today's common four-year lease, "anything can happen. You can get a promotion, a demotion, get married, have a family, get transferred," says Ron Joseph, founder and CEO of Swapalease in Cincinnati, an online lease trader. On the other hand, "imagine being able to drive a different vehicle every 18 months," he says.

Four major websites – Swapalease.com, LeaseTrading.com, LeaseTrader.com, and EzOutEzIn.com – have transformed the market by connecting online those who want out early with those looking for cheap payments on an almost-new car for the short-term.

So far, the clientele – both "buyers" and "sellers" – is cutting-edge: mostly 30-something high-tech workers with luxury cars, says Art Spinella, president of CNW Marketing Research in Bandon, Ore., which recently conducted a study on lease trading.

Most customers who successfully swap leases are delighted, says Mr. Spinella. "From what we've seen, it works. There doesn't seem to be anything there you can get burned on."

But he concedes that without a couple more years of study, researchers may not come across the pitfalls, because disadvantages may not become apparent until later in the lease term, or after the second lessee finishes the term.

The customer-to-customer transfer of leases has always been theoretically possible. Like mortgages, most leases can be assumed by others, although relatively few lease contracts specifically say so, says Mr. Joseph, of Swapalease.

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