When you initially signed your vehicle lease, you probably intended to make every payment of that lease term. But sometimes life changes and you may find yourself needing to get out of your car lease early.
Maybe you’ve had some lifestyle changes and the style of your vehicle is no longer a good fit. Or, maybe you’re having trouble making your monthly payments.
Whatever the reason, you need a solution – and there are ways to get out of your lease. They aren’t always cheap or ideal, but the good news is that you have a number of choices.
Even if you need to get out of your lease quickly, take some time to read your lease contract and understand your options. Some of these options are more expensive than others, so it’s important to choose the option that’s right for your specific circumstances.
Understand the Penalties You Might Face
Before you can determine the best way to get out of your lease, you need to understand the common financial penalties that you might face for ending your lease early.
Early Termination Fees
When you signed your lease, you probably agreed to an early termination fee. This is a standard inclusion in most leases, though it could be a flat fee or a penalty that gradually declines over the course of your lease.
Negative Equity Payments
In addition to this early termination fee, you might be required to cover any negative equity that results when you choose to end your lease early. During the time that you have your leased car, that brand-new vehicle that you drove off of the lot depreciated in value.
The car that you return to the dealer will be less valuable when they go to sell it after your lease. Dealers structure leases so that your payments more than cover this depreciation, but if you end your lease early, you may be responsible for paying the difference, or negative equity.
Some lease agreements even hold you responsible for making all of the remaining lease payments, even if you decide to end the lease and return the vehicle early. Many other miscellaneous expenses can add up:
- Unpaid taxes
- High mileage
- Scratches or dents to the body
- Stains in the upholstery
- Tires that are overly worn or damaged
Calculating Your Penalties
Your penalties will depend on the contract you signed as well as the laws in your state. Sit down with your lease contract and do some math to determine the exact penalty that you’ll pay if you end your lease now.
If you call the customer service line of your lease provider, they should also give you an exact penalty amount. Before you decide to end your lease, think about whether paying this penalty would cost more than if you continued to make payments until the end of the lease term.
If you decide that it’s best to end your lease, or if you don’t have a choice, then you’ll have a few different options to choose from.
Return Your Leased Car
The easiest and fastest way to end your lease is to return your car to the dealership you leased it from, but this option still has consequences. You’ll be responsible for the penalties identified above, so this is really only an option if you’re financially able to cover those expenses.
There are perks to just returning your car. The dealership will take care of completing all of the paperwork, meaning your lease comes to a neat close. It’s a quick and tidy – yet expensive – way to end your lease. If you pay all of the expenses, including any penalties and the remaining lease payments, your credit scores won’t be negatively affected.
Get a New Car
If your current lease vehicle no longer suits your life, the dealership that you originally leased from may be able to help. You can either lease or buy a new vehicle from that same dealership, ending your lease and getting into a more appropriate vehicle. Even if you owe more on your lease than your current vehicle is worth, a dealership will work with you to get you into another car.
The catch is that your balance on your lease gets applied to your new lease or your loan. If you owe $8,000 on a lease, you’ll owe that in addition to your new lease or loan balance.
Here’s an example:
- Your lease obligation is $12,000, but your car has high mileage and body damage, so its value is only $10,000. You would need to pay $2,000 to end your lease now.
- You decide to lease a new car from the dealer.
- Your new lease costs $14,000, and that $2,000 balance from your old lease gets added on.
- You’ll owe $16,000 on your new lease.
The scenario works the same way if you buy a new vehicle. This buyout option makes sense if you only need to change up your vehicle and if you’re still financially able to handle the cost of a lease or a car payment.
If your goal is to lease a new car, check to see if you may be eligible for a pull-ahead program. Both auto manufacturers and dealers offer pull-ahead programs that encourage you to start a new lease before your current lease’s end.
These programs typically waive your last few lease payments. They may also offer other perks, like forgiving damage or excessive mileage fees if you sign up for a lease program.
Buy Your Car
Buying your car from the dealer is ideal in a situation where you need to quickly get out from the financial obligation of your lease. Many leases have a buyout option, allowing you to buy your vehicle during or at the end of the lease for a predetermined price.
Your lease contract will specify this buyout price, which is the vehicle’s residual price. This residual price is usually non-negotiable and is based on the sale prices for your car’s make and model. Cars in high demand tend to have a higher residual price than less popular cars.
Taking a lease buyout option is only a wise choice if your car’s residual price is less than the car’s resale value. If your car’s residual price is $20,000, but its resale value is $17,000, you’ll lose money by buying your car.
If that same car has a resale value of $21,000, the buyout option will let you buy the car and then resell it to a third party, ending your lease. Refer to a site like Kelley Blue Book to determine your car’s resale value.
If you decide that a buyout is right for you, you’ll need either cash on hand to purchase the vehicle, or you’ll need to apply for an auto loan. If you plan to quickly sell your car, verify that you won’t be penalized for paying the auto loan back early. And if you take a buyout before your lease’s end, be prepared to possibly pay early termination fees, as well as taxes and registration fees.
Transfer Your Lease to Someone Else
With lease trading or swapping, you can transfer the remaining term of your lease to a buyer who wants a shorter-term lease. Sites like Swapalease and LeaseTrader facilitate this transfer, keeping things simple for you.
These sites charge listing fees, and you may need to cover a lease contract transfer fee ranging from $300 to $500. But, this can still be a low-cost way to get out of a lease early.
Buyers look for lease transfers for many reasons:
- They want a short-term lease.
- They want to be able to buy a vehicle at a discounted price at the end of a lease.
- They lease swap often, so they get to buy a different vehicle often.
- They want to avoid paying a large down payment or security payment at the beginning of a lease.
Certain leases are more appealing to transfer and swap buyers:
- Leases that allow for generous monthly mileage.
- Leases of unique vehicles, or models that are hard to find.
Before signing up, first verify that you are allowed to sell the lease – some companies prohibit this. If your contract refers to language about “transfer of equity,” then even after a transfer, you may be responsible for your lease payments if the buyer ever doesn’t make those payments. If your contract specifies a “full lease assumption,” then once you transfer your lease, you’ll be free of your obligations.
Default on Your Lease
While defaulting on your lease is an option, it has many negative outcomes. If you stop making payments on your lease, your lease provider could repossess your car. Sometimes lease providers use devices that remotely deactivate your car’s ignition system, making it easier to repossess the vehicle.
The laws surrounding these starter interrupt devices vary from state to state, and you may or may not receive a warning before your vehicle’s ignition is disabled.
If you default on a lease, you could still be responsible for early termination fees. If you can’t or don’t pay those fees, the lessor can report your delinquent charges to the credit bureau, which will negatively affect your credit score.
With a poor credit score, you’ll have a hard time getting another lease or getting approved for other types of credit in the near future. If you need to apply for a car loan with bad credit, your credit score may mean you’ll have higher interest rates or even be denied for the loan.
If you have any choice, don’t default on your lease and find another way to get out of the agreement, instead.
The Best Choice for You
Ultimately, the best option for you will depend on the reason why you want to end your lease and your financial situation. If you need to end a lease because you’re in financial hardship and can’t make the payments, start by talking to your lease provider.
Many of these companies will try to work with you, especially if your situation is temporary and they can enjoy the benefits of having you continue through the end of your lease.