Yahoo Finance Should You Let Uber Help You Lease a Car?
Uber is taking another spin with car leasing. The popular ride-hailing startup began helping its drivers with vehicle financing in late 2013, but the effort quickly drew criticism over high interest rates and rigid lease structures. Uber also cut fares, which meant many drivers had to work longer hours to cover their car payments.
"Uber's first attempt at a leasing program was expensive, and it locked drivers into working for Uber," says Harry Campbell, a Los Angeles-based Uber driver and blogger at TheRideshareGuy.com. "Most drivers don't see driving for Uber as a long-term proposition, but with these leases, they were forced to basically make a 36-month commitment."
Some recent changes Uber made may help remedy the situation. Last month, the company rolled out Xchange Leasing, a pilot financing program that lets drivers lease vehicles in some U.S. cities, including Los Angeles, San Diego and San Francisco, along with select communities in Georgia and Maryland.
The program could provide drivers with a relatively straightforward way of getting new wheels. Available only to current or prospective Uber drivers, the company offers three-year vehicle leases with relatively low early-termination fees and unlimited mileage -- terms that typically aren't offered by traditional lenders.
Increased Flexibility
"Our new program is unique in a few ways," notes Andrew Chapin, the company's head of vehicle solutions. For one, drivers can abandon the deal after 30 days and return the car at any time after that. They only have to give two weeks' notice and pay a $250 early termination fee. Most leases charge a penalty for ending early, but traditional lenders tend to charge a good deal more -- sometimes thousands of dollars more.
Some drivers say the new deal is better.
"If you go out and do this lease and you're not making the money that you expected, you can always quit," says Campbell, who recently applied for a lease under Uber's new program. "You won't be out thousands of dollars."
Unlimited Mileage and Other Perks
Unlike many traditional car leases, individuals can drive as far as they want under an Xchange contract. Most other leases come with mileage limits and penalize drivers for exceeding those caps, including additional per-mile surcharges.
Traditional leases cap mileage at 12,000 to 15,000 miles a year. Under those terms, an Uber driver who works five days a week all year wouldn't be able to average more than about 46 to 57 miles a day without getting penalized. Meanwhile, the company's Xchange deal won't punish a driver who wants to make more money by putting in long hours and, in turn, racking up thousands of miles on the car.
Successful applicants can lease a new or a used vehicle. The financing also covers oil changes after 5,000 miles and air filter replacements after every 25,000 miles.
Thanks to its deep pockets, Uber can afford these additional perks. "We don't view this business as a profit center," Chapin says, referring to the Xchange program. "We don't need to make the same amount of return that a traditional lender does."
Under the program, a typical three-year lease calls for an upfront deposit of $250 and weekly payments of about $100, according to Uber's website. The weekly payments -- which will likely vary depending on a driver's creditworthiness and the type of vehicle are -- taken out of a driver's earnings.
If a financing application is accepted, a driver can choose from about 30 vehicle models from eight manufacturers.
More Potential Options
Although Uber's new lease deal isn't widely available, the startup has other financing options that can help would-be drivers get behind the wheel. For instance, Uber drivers may also qualify for auto loans from Westlake Financial Services, an Uber lending partner.
As with any decision that involves your hard-earned dollars, be sure to compare Uber's rates and fees with those found at traditional lenders. Credit policies tied to Uber financing haven't been very stringent in the past; some Uber drivers reportedly have been stuck with financing at interest rates as high as 22 percent.
Anyone with poor credit who is contemplating financing a new vehicle to use as an Uber driver should consider how they'll pay off any existing debt before taking on a new obligation, says Carrie Houchins-Witt, a financial advisor in Coralville, Iowa.
"If I am working with a client with poor credit, we examine the reasons behind it and start down a path to clean up the credit," she says. That way, prospective borrowers can improve their credit scores, which can help lock in better rates when applying for financing down the road.
The Bottom Line
Uber's new Xchange program is certainly unconventional, and it's worth monitoring to see whether it will expand to more cities. Its flexible terms and lack of mileage limits could appeal to drivers who have their sights set on making some additional cash without having to worry about getting fined for working too much.
Tony Armstrong is a staff writer at NerdWallet, a website devoted to helping consumers make smart financial decisions.
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