Lease to Own Car Agreement Overview
A lease to own car agreement is exactly what it sounds like. It’s a contract which allows for a consumer to lease a car and eventually own it. The technical name is an "installment contract," which is a specific type of car purchase. While the car is technically owned and in possession of the dealership, the consumer has the ability to drive it on a month-by-month basis with costs associated with the leasing of it rather than the outright purchase.
A lease to own car agreement works similar to a home mortgage. The dealership holds the car as collateral. If the individual cannot afford the monthly payment, they return the car to the dealership . If the consumer fails to pay it each month, the dealership can repossess the vehicle. The same happens when a consumer is done paying off the loan, at which point the car passes to the consumer.
The basic premise of a lease to own car agreement is that it allows a consumer to make monthly payments toward the purchase of a vehicle without make a great financial commitment all at one time. Most people cannot walk up to a dealership and buy a $30,000 with cash. The lease to own car agreement allows an individual to pay off their vehicle in installments, which is generally a more affordable solution.
Main Components of a Car Lease to Own Agreement
A standard car lease to own agreement template generally outlines the following components:
Payment Terms – The agreement should detail the total sales price of the vehicle along with the down payment amount. It should also include payment plans and payment due on the last day of each month.
Duration – The lease to own agreement should include a clause stipulating the duration or the term of the agreement. For instance, a basic car lease to own agreement will have a specified duration such as 24, 36, or 48 months.
Responsibilities of Parties – The lease to own car agreement should outline the responsibilities of each party. Typically, the responsibility of payment is placed on the lessee while the responsibility of upkeep is placed on the lessor.
Maintenance – It is important for lease to own car agreements to include clauses for maintenance to be provided by the lessor. However, the contract can also stipulate that in the event the lessee intends to purchase the vehicle in a fixed amount of time, he/she will be responsible for maintenance and upkeep of the vehicle.
Early Purchase Option – Lease to own car agreement contracts may contain clauses for early purchase of the vehicle. For example, the contract may stipulate that if the lessee intends to purchase the vehicle on or before a specific date, he/she will be responsible for maintenance of the vehicle.
How to Draw Up a Leasing Document for A Lease to Own Vehicle
A lease to own car agreement template, like other templates, can be drafted in a way that covers all of the bases and serves the needs of the parties. A lot of it comes down to how well the drafter understands the purpose of the lease to own car agreement and the circumstances of the parties. A lease to own car agreement can be a simple document or a long one that states all of the rights of the parties. The longer deeds are often important for dispute avoidance.
When a lease to own car agreement template is drafted, the first step is to state the names of the parties. Usually that will involve the full names and addresses of the parties. In the case of a corporation, it will often be better to state the full legal name of the corporation and the state of formation. Depending on the state, it may be a good idea to state the principal place of business of the car dealer. This way the consumer will have some protections in the lease to own car agreement.
The next step is to identify the vehicle. The year, make, model, and vehicle identification number block should be in the lease to own car agreement template. It may be necessary to state whether or not the vehicle includes accessories or other items. That can prevent any disputes down the line.
After that, the payments should be stated. It is a good idea for there to be a place where the payment schedule is stated. The schedule should be very specific so that there is no dispute about what will be paid when. For example, including specific dates and numbers prevents there being an issue. The point is to be specific with how much will be paid and when. That is important for both the dealer and the consumer.
A section on warranties should be included in the lease to own car agreement. Most of the time, that will involve stating that there are no warranties. Other times, there will be some warranties. Car dealers are often limited in how they can provide warranties on vehicles. It is important to understand any restrictions in the lease to own car agreement.
Arbitration clauses are very common in lease to own car agreements, especially if the consumer financed the acquisition. Arbitration agreements often state that any issue with the car will be decided by an arbitrator rather than a judge. It is much less popular to use arbitration clauses in lease to own car agreements if the consumer did not finance the vehicle because there will be less of an issue.
After the template is drafted, it is very important that the lawyer has someone else look at it. Having a second set of eyes is always a good thing to have when drafting any legal document.
Legal Issues Involved with Lease to Own Agreements
The legalities of a lease to own car agreement are generally similar to that of a traditional lease agreement for a car and are governed by state or provincial laws. All provisions covered under a standard lease for a personal vehicle apply to lease to own car agreements as well. In addition to the aforementioned general guidelines, the unique lease to own car agreement contains additional clauses that require consideration and should be outlined in full detail to avoid any possibility of misinterpretation. Much the same as with a standard lease, lease to own car agreement templates provide general guidelines for the length of the lease and specify any additional terms such as responsibilities for repair and maintenance between lessee and lessor as defined under local laws. These agreements protect both the lessor and the potential buyer in the transaction, since the agreement guarantees the selling price of the car to the lessor as long as the lease is maintained without default of contract, while also protecting the lessee if premature termination occurs. A majority of states require written lease agreements to be signed by both the lessor and lessee, while some have begun accepting an electronic signature or are phasing them out entirely. Most states designate a separate lien for vehicles transferred under lease to own car agreements.
Pros and Cons Of Lease to Own Car Arrangements
Like most things in life, there are advantages and disadvantages to leasing to own a car as opposed to traditional leasing or financing. It offers those with poor credit to get in on the action of owning a brand new car without putting up much, or any money down. Deciding if a typical lease or finance deal is better for you is something best discussed with an attorney.
Disadvantages:
The first of its kind, the lease to buy offers the most flexibility. However, it also requires the most trust. If your car dealer is not reputable, you may find yourself paying more than the price of the car, and it is possible that you won’t actually end up paying the best price. The first problem we will speak of is the basic distrust of the process. You are buying a car that you have not ever had the opportunity to drive even once. You have no idea what you are getting from them, and they have all the cards stacked in their favor. You can’t do due diligence on your car so to speak , and you can’t go somewhere other than your dealer to have repairs done. Your agreement may also have a clause saying you have to buy the car. That certainly takes the air out of the "lease to buy" title doesn’t it? So you can’t say to them, ‘I’m out.’ You also cannot return the car after a month if you don’t like it. You are stuck with it. You may have to pay all taxes and fees, and the dealer will not break the car down by these costs. This means you could be paying significantly more than you should.
Advantages:
A major advantage for the buyer is the very low down payment, which we’ve already mentioned. If you are in a situation where you can’t afford to put down thousands of dollars, but need a new car, the lease to buy program may be for you. You have nothing to lose by trying. Another major plus is poor credit holders who believe they will never be able to purchase a new vehicle. This is now attainable, thanks to lease to buy options.
Alternative Financing:
If getting into a lease to buy is impossible for your particular situation, it is worth knowing that there are many lenders out there willing to deal with you to help you in trying to procure the car you want.
How To Get The Most Out Of A Lease to Own Car Agreement
Consumers should take the time to read through these tips for negotiating a great lease to own car agreement. To gain leverage in the negotiation process, consumers should make a point to access everything available to them online. When they are presented with any contract offering, they need to make sure they have done their research beforehand. The majority of the time, the cost of the lease to own vehicle is going to be significantly more expensive than financing with a lender or outright buying the car. Therefore, in order for you to feel like you got a deal, you have to be prepared to speak the lease to own car Company’s language. Consumers should check Kelley Blue Book online and have print outs of the comparable vehicles to back up their side of the negotiation. In addition, it is important to be able to show how much the average bank payment would be if you decided to finance the vehicle instead of leasing it. By putting the two options side by side, consumers can better understand whether leasing or financing would be more beneficial to them. When consumers have the facts and figures to present a business, they are much more likely to get the results they are looking for.
Lease to Own Car Agreements – Mistakes to Avoid
Consumers are often unaware of a common practice with Lease to Own auto dealerships that may leave you, the consumer, in a worse position than if you had financed the car through a finance company or bank. It is not uncommon for a Lease to Own dealership to advertise a set payment amount to lease the vehicle. The consumer expects that the payment advertised is a "tax included" payment or "out the door" payment.
However, the Lease to Own auto dealership may add on additional fees, mark ups or "adders"; such as a dealer document fee, maintenance plan, gap plan and/or after-market product. The terms of the Lease to Own agreement can be one of the biggest pitfalls in animal cases of this type. The terms can be used to effectively deceive a customer into paying for cars that they do not own. Lease to Own dealerships will often have 3 month leases which are then paid off by making payments for 52 months in order to purchase the car. That means that you are paying for the car for a total period of 55 months instead of the 12 months or 24 months that would be expected with car financing. On top of that , you are not paying anywhere near the true "Retail" price for the vehicle. Most of the Lease to Own agreements I have seen are for amounts $500 -$1500 more than the car would retail for. If the car were in excellent condition, it would sell for far less at a dealership or in a private sale. As such, the consumer ends up paying much more for a car in worse condition than what they would expect.
It is important when making this decision to go into it with your eyes wide open. A consumer should be sure that they understand the Lease to Own transaction and should be aware of its significant drawbacks.