October 2, 2019

How to Get Out of a Car Lease


Can you get out of a car lease early? Yes, but it can cost you. Learn how breaking a car lease might hurt your credit, and how to get out of a lease without penalty.

© CreditDonkey

Dealerships and leasing companies make it difficult to get out of a lease. Why?

It's simple—their profits are based on receiving the full amount of scheduled depreciation of the car. Many contracts have built-in penalties and fees to prevent buyers from canceling early.

But you do have some options, including:

  • Buying the car, then selling it
  • Transferring your lease
  • Buying or leasing a new car with the same dealer
  • Defaulting on the lease

Keep reading to learn more.

Types of Leases
Knowing the type of lease you sign can help determine your total costs when ending the lease early or fulfilling your obligation.

An open-end lease could leave you with financial responsibilities even after the lease ends. This happens if the value of the car at turn-in is greater than what you have paid thus far.

A closed-end lease won't leave you on the hook for this difference in price.

Costs of Ending a Car Lease Early

Leasing companies and dealerships charge fees and/or penalties to make up for the money they'd lose for early termination. Some of the most common charges include:

  • The balance of your remaining payments

  • Flat early termination fee

  • Early termination fee based on the number of months left in the lease

  • Difference between the car's current value and lease balance (negative equity)

  • Costs to store, transport, and prepare the car for sale

  • Taxes on remaining lease payments

Reading the fine print on your lease agreement will help you understand what ending a lease early may cost you.

Getting Out of a Car Lease Without Penalty
Typically, if you satisfy the terms of the lease by paying the full amount of the contract, you can avoid penalties. Check with your leasing company to see if this is an available option for you.

Least Expensive Way to Get Out of a Lease

Many lease agreements have a buyout provision that may cost less than any other option. If the car's resale value exceeds the cost of the lease buyout, this is likely your best option.

For example, if your car has a resale value of $15,000 and there is $10,000 left on your lease, you can pay off your lease, sell the car, and end up with $5,000 in your pocket.

This option isn't a great idea in some cases. If the lease balance is $20,000 and the car's resale value is $10,000, you would pay $10,000 more than you would get back in the sale.

How to Buy and Sell a Leased Vehicle

  1. Contact the leasing company to find out your buyout amount

  2. Look up the resale value of the vehicle on Kelly Blue Book or Edmund's

  3. If the car's value is greater than the buyout amount, decide where you'll sell the car

  4. Buy the car from the leasing company

  5. Sell the car to a third party

If you use the buy/sell tactic, don't sell the car to a dealership. You'll only get wholesale value for the car rather than the resale value from a third party. Selling the car privately will increase your chances of walking out ahead of the deal or close to breaking even.

Trade-in for a New Car

If you just want to get a new car, you may be able to trade in your leased vehicle by going to the dealership that holds your lease.

Dealers may still charge an early termination fee or, in some cases, you can negotiate that out of the new deal. However, you will still owe the balance of the lease agreement—which will be rolled into your new car payment.

Your new payment will include:
  • The new lease payment
  • The balance of the unpaid lease
  • Early termination fees

Ending a Car Lease When You Can't Afford It

© CreditDonkey

Ending a lease if you cannot afford the payments can have negative consequences. Keep reading for the best ways to end your lease if you need a quick way out.

Getting Out of a Car Lease Doesn't Have to Hurt Your Credit
If you fulfill your financial responsibilities by paying the balance and/or appropriate fees, it won't affect your credit in a negative way.

Lease Transfer

Third-party services, such as LeaseTrader.com, list leased vehicles similar to the way used car sites list cars for sale. Rather than paying you cash, interested "buyers" will take over the lease for you.

Most lease swap companies charge a fee to list the car on their site. Your leasing company may also charge a lease transfer fee.

Before transferring your lease, make sure the leasing company allows a transfer and that it's legal in your state.

Liabilities in a Lease Transfer
Your lease agreement may require you to remain on the lease until the transfer lessee pays it in full, similar to a cosigner on a car loan. That means you remain liable for the lease until it's over, and may even be on the hook for over the mileage fees or any damages to the car.

Defaulting on the Lease

If you need a fast way out of your lease, you can return the car via voluntary repossession. In a voluntary repossession, you arrange the time and place for the lease company to take the car back.

Simply returning the car will NOT void your lease, however. The leasing company will charge you early termination fees and may force you to pay the balance of the lease agreement. Your credit score will also take a hit (more on that below).

But you will avoid the repossession fees that repo companies charge, which can help if you are already in a difficult financial situation.

How a Lease Affects Your Credit

Here are some factors that impact your credit score:

  • Late Payments
    Letting your lease lapse more than 30 days past the payment due date can cause your credit to drop. It will continue to drop every 30 days that a payment is missed.

  • Defaulting on the Lease
    Letting the car go into voluntary or involuntary repossession will put a derogatory mark on your credit report that will remain for the next 7 years.

  • Leaving an Unpaid Balance
    Any balance that remains on the lease could damage your credit. Leasing companies may send the balance to collection agencies, or worse, file a judgment against you. These stay on your credit report for up to 7 years.

If you can't afford your payments, get in contact with the leasing company right away. They may have options to help alleviate the damage to your credit score.

Bottom Line

Fulfilling your lease agreement will leave you with little to no fees. It's also the best option to protect your credit. The least expensive option when ending a lease early is to buy and sell the vehicle.

If you can no longer afford the lease, finding a buyer to take over your lease will typically have the least financial impact. Before making a decision, read the fine print on your lease to review your options.

More from CreditDonkey:


Best Time to Buy a New Car


How to Finance a Car


Can You Buy a Car with a Credit Card

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