David Bach The Automatic Millionaire

A few months ago, I was having dinner with a friend who had just gotten a new Range Rover -- a really sharp vehicle that's fully loaded and fun to drive. As it turns out, he didn't buy or lease it directly from a dealer. He took over someone else's lease, and saved a fortune in the process.

My friend's experience led me to think about the other side of the deal -- what the benefits were for the person looking to get out of the lease.

Suppose your personal circumstances change -- you lose your job, have a baby, or experience another life event that affects your financial situation. What options do you have for getting out of an expensive lease that may be costing you hundreds of dollars a month more than you can afford?

Why Auto Leasing Is Popular

Approximately 17 million cars are leased every year in this country. That's about one-third of all new cars sold, according to CNW Marketing Research.

Leasing is popular because of lower upfront costs, and it gives many people the ability to drive a nicer car than they could otherwise afford. In fact, about 90 percent of the new luxury cars you see on the road are leased.

When you lease a car, you're basically renting that car for a specified time period -- usually 24 or 36 months. But keep in mind that once you're in a lease, the automaker and car dealer are no longer in the equation. It's now an agreement solely between you and the financial institution holding your lease. And believe me, they don't have any big incentive to let you out of the lease early or take it back.

Break Your Lease without Going Bust

When you're faced with the challenge of too-high car payments, you have a few choices. First, you can simply break your lease agreement, but it's going to cost you.

The problem with breaking your agreement is that you're not only responsible for the remaining payments on the lease, but you'll also be hit with very high pre-penalty and transaction charges that can potentially add up to thousands of dollars.

Next, you may be able to negotiate down the pre-penalty charges if you assure the dealer that your next car purchase will be through them. But at the end of the day, you'd probably end up paying more than you would if you were to continue with the lease.

You might also consider buying out your lease and then selling the car. This only makes sense if you're able to sell your car for more money than the final buyout amount. Call your leasing company and ask them what it would cost to buy out your lease, and check out the current market value of the car at Kelley Blue Book online.

Selling Your Lease Instead

Here's a different option I highly recommend you consider: Find someone (like my friend) who can take over your lease.

First, make sure your lease agreement allows for a lease transfer. Then go to a web site like LeaseTrader.com or Swapalease.com, two big players in the auto-lease transfer business. (For the record, I don't earn a penny from either company. I simply want to share some great resources with you.)

Both sites match leaseholders who want out of their contracts with people willing to take them over. The process isn't free, but it's surprisingly affordable considering your alternatives.

The Web Makes It Easy

Here's how the sites work for lease sellers:

1. Post an ad for your vehicle: On LeaseTrader, posting an ad costs $79. Swapalease has a range of fees from $49 to $149, depending on how prominent you want your ad to be.

2. Field offers and negotiate: Once your ad is up, you'll be contacted by prospective buyers. You have the freedom to negotiate the terms of your deal and, depending on how fast you want to sell, can always sweeten the pot with price concessions or offer to pay the buyer's transaction fees.

3. Finalize with your leasing company: Before you hand over the keys to your buyer, you'll need to contact your leasing company and change the name on the lease. Leasing companies typically charge $200 to $400 to do this. You'll want to ensure that not only your name but also your obligation is completely gone from the leasing agreement once the deal is finalized.

4. Pay remaining fees: LeaseTrader charges $149 to both the buyer and seller for a successful transaction. Swapalease has the seller pay an additional $95 when a transaction is made, but only if they chose the cheapest listing option.

Here's how the sites work for lease buyers:

1. Browse the ads: You can browse general listings for free on both web sites, but for serious buyers who want to contact sellers and start negotiating, each site has a comparable membership fee of about $40 for two months.

2. Contact sellers and negotiate: After you sign up for a membership, you're able to contact sellers. Assess the cars you're interested in the same way you would when buying any car, and also pay special attention to mileage. (If you drive a lot, you'll want to avoid leases with few miles left.) Negotiate a fair price, but remember that other buyers may be willing to pay the full payment listed.

3. Review the lease agreement: Don't forget to read all the fine print. There may be additional charges from your new leasing company if you don't buy the car at the end of your term. Some leasing companies don't allow lease transfers, and some only allow one transfer. So after you take over a car, you may not be permitted to pass it along.

4. Finalize with the seller: You'll want to have the car inspected by a professional. Once you've agreed on the price and understand the leasing agreement, the entire process typically takes about three weeks.

Keep in mind that your credit rating will be considered when taking over a lease, and remember to talk about delivery of your car if the seller isn't nearby. Delivery could cost several hundred dollars -- but who pays for it is, of course, negotiable.

So, as a buyer or a seller, you might expect to pay a total of about $400 to $600 to take advantage of this service. However, depending on which side of the deal you're on, and the conditions of the car and lease in question, you may be able to negotiate your cost way down.

It's Your Choice

Is leasing a smart financial move in the first place? The answer depends on your individual circumstances, your personal needs, your driving habits, and the terms that are offered to you.

In general, there are two categories of drivers for whom leasing makes sense: those who drive fewer than 10,000 to 12,000 miles per year (because the per-mile overage costs on most lease contracts make them cost-prohibitive for anyone driving more), and those who drive exclusively for business (because the entire lease payment may be tax-deductible).

As for buying a new car, I believe it's the worst investment you could ever make; the minute you drive it off the lot the value drops by about 35 percent or more. But my intention isn't to proclaim that leasing is better than buying. Again, that decision is different for everyone -- and I'll cover it in greater detail in a future column.