How to Get Out of a Car Lease
There are several reasons why you may want to exit a car lease, but terminating it early can come with hefty fees. Fortunately, there are several different options for getting out of a car lease.
Today, we'll review some of the top options for getting out of your car lease early and how to choose the one that's right for you.
Table of Contents
- Reasons to End a Car Lease Early
- Getting Out of a Car Lease Early is Not Always a Good Idea
- Penalties for Early Termination of a Car Lease
- Default on the Lease
- Return the Car to the Leasing Company
- Try to Work with the Leasing Company
- Buyout the Lease then Sell
- Transfer Your Lease
- Purchase a New Car Through the Same Dealer
- What's the Best Way to End a Car Lease Early?
- Best Lease Deals by Category
- Frequently Asked Questions
Reasons to End a Car Lease Early
People generally want out of a car lease when their circumstances change significantly from when the lease started. A few examples may include:
- Moving to an area where you no longer need a personal car.
- Losing a job or source of income that makes the lease unaffordable.
- Your vehicle needs change and it no longer meets your requirements.
Getting Out of a Car Lease Early is Not Always a Good Idea
While it's sometimes necessary to end a car lease early, it's not always a good idea. If the reason you want to switch is a preference, not need-based, you may be better off dealing with the current car until your lease expires.
Also, consider the cost of terminating a lease early versus the cost of paying for the rest of the lease. In some cases, it may be cheaper to keep the car.
Penalties for Early Termination of a Car Lease
Lenders make money from a lease when all payments are completed in full, which is why there are penalties associated with early termination. You must check your lease to know which penalties you would incur, but some common ones include:
- Paying for the storage or transportation of the vehicle.
- Paying all leasing taxes.
- The requirement to pay some or all remaining payments on the lease.
- Fees for the costs related to preparing the vehicle for sale.
- An early termination fee.
The two most common penalties are making remaining payments and an early termination fee. If you have to pay all of your remaining payments, terminating the lease will be extremely costly. Early termination fees may be on a sliding scale and are determined in your lease.
Default on the Lease
Ceasing to make car payments for your lease results in you defaulting. This is not a recommended strategy for ending a car lease early, but it is, unfortunately, something that happens to people.
While you get out of the monthly payments, you also take a big hit to your credit. You may also face collection for the unpaid early termination fees and lease payments, which can create larger problems down the line.
Return the Car to the Leasing Company
The first option for getting out of a car lease is perhaps the easiest, and that is to return the car to the leasing company. This option is very fast and easy because the dealer or leasing company handles all of the details. However, it typically is the most costly because of the associated penalties in your leasing agreement. It's common for the leasing company to sell a leased vehicle that's returned early at a wholesale auction, and then require you to pay the remaining depreciation of the vehicle.
Typically, returning the vehicle won't make the most financial sense. However, it may be a good option for those who only have a short amount of time left on the lease.
Try to Work with the Leasing Company
If your primary reason for wanting to end the lease early is financial trouble, you may be able to negotiate with the leasing company. When you default on a lease, the leasing company will face extra costs, so it's in their best interest to work with you. While it may not always work, in some cases the leasing company may agree to temporarily lower or suspend your monthly payment. You may have to make up the difference early on, but it can potentially avoid extra penalties.
Buyout the Lease then Sell
Many times, it's cheaper to buy out the lease and resell the car yourself than it is to terminate your lease with the lender. Most leases include a buy out option. If the buy out amount is less than the resale value of the car, this choice can be a good move financially.
Find out what the buyout amount is from the leasing company, and get the information in writing. Next, determine the current value of the vehicle on resale. If the sales value is higher than the buyout value, it's a smart move to buy out the lease and sell on your own. Even if the sales value is less than the buyout price, it may still be less expensive for you to buy and resell than it would be to pay all of the penalties with the leasing company.
Transfer Your Lease
Depending on the regulations in your state and the details of your lease, you may be able to transfer your lease to someone else. Some leasing agreements will still hold the original owner of the lease responsible for any costs at the end of the lease term via "post-transfer liability", so it's critical to understand the rules in your lease.
There are a few places online that specialize in lease trading, including Swapalease and LeaseTrader. For a small listing fee, you can post your car and payment information on the site to find someone who is interested in taking over your lease under its terms. Some lease buyers are looking for a short-term lease, or they may be interested in forgoing the upfront costs of a new lease.
You may still have to pay a fee to transfer the lease, but it may be far less expensive than early termination. Make sure to compare the costs of the two options and to understand all of the rules surrounding a lease transfer.
Purchase a New Car Through the Same Dealer
When you purchase a new car from the same dealership that you lease your current car, you may be able to reduce or waive the penalties associated with ending the lease early.
However, you should be cautious of hidden exit fees on the lease that are buried within the terms of the new purchase. The dealership may roll over the cost of penalties into the loan balance on a new car.
Buying a new car from the same dealer can make lease termination less of a hassle and help you avoid the need to come up with the cash upfront. You should really evaluate if you can or should purchase a new car during your lease term.
What's the Best Way to End a Car Lease Early?
In general, ending your car lease early can be expensive and time-consuming, but you'll need to consider the terms of your lease, how many months are left, and your financial situation when choosing an option.
Terminating the lease with the lender is often the fastest and easiest process, but it can be the most expensive. You should compare how much the alternative options will cost you even though they may involve more work. No matter what, you should do everything in your power to not default on your lease. Depending on your personal situation and reasons for wanting to end a lease, it may be a smarter move to just finish the lease.
Frequently Asked Questions
Can I get out of a car lease without penalty?
When you terminate your car lease with the lender, you'll likely face early termination fees and other penalties. To avoid the penalties, you can consider the early buyout option, trading your lease for another vehicle, or finding someone to take over your lease. Beware that there may still be fees involved with those options.
Is it hard to get out of a car lease?
It is difficult and expensive to get out of a car lease, but it can be done. Getting out of your car lease early is better than defaulting on payments if you face financial difficulties.
Does terminating a lease early hurt your credit?
As long as you pay all associated fees and penalties, terminating your car lease won't hurt your credit. What will hurt your credit is making late payments or defaulting on your lease.
Can I sell a leased car?
If you are still leasing a car, you cannot sell it because you do not own it. However, if you take the buyout option then you can buy the car out of the lease and sell it.