5 Ways to Get Out of a Car Lease EarlyTerminating a car lease early is possibly the most expensive mistake you can make. Although you have several options, each one is going to cost you money and time.
One of the advantages of a lease is supposed to be convenience, but all of that is thrown out the window if you terminate early. Let's take a look at your options.
1. Transfer Your Lease
Most leasing companies allow you to transfer the lease to another person, but be aware that in most cases, you will still technically be on the contract and liable if that other person stops making payments. You will also have to pay a transfer fee which can range between $50 and $500.
Depending on your mileage and the amount of money you put down on the lease, you may have to offer an incentive that will lower the monthly payments for the new lessee. This can range from $500 to $5,000.
2. Sell or Trade the Vehicle
Many people don't realize you can buy the vehicle from the leasing company at any time. This is called an early buyout and in some cases, it's a great way to get out of your lease if you can find a buyer for the car.
The first thing you need to do is find out the payoff or buyout amount of the vehicle from the leasing company. Always make sure to deal with the leasing company directly and not a dealership.
The leasing company is the one that owns the car so if you communicate through a dealer, you're just adding a middleman that can potentially screw you over.
The payoff amount will include an early termination fee of around $200 to $500 plus any remaining depreciation cost.
In most cases, the car will be worth less than the payoff amount so you'll need to incur the difference as a loss when you sell or trade the vehicle. For example, the payoff amount may be $18,000 but similar cars are only selling for $15,000.
If you put down a large down payment at the beginning of the lease, you have a much better chance of breaking even.
Keep in mind that if you're going to be buying the car from the leasing company and then selling it to a 3rd party buyer, you may be subject to paying taxes. Most states have exceptions if you buy and sell within a certain time period, such as 10 days. Check with your DMV office to find out what the rules are in your state.
Rather than selling to a private party, you can trade the car in at a dealer. Note that they will be paying you wholesale value for the car which will result in a lower amount than if you sold it privately.
The main benefit with the dealer is that they will take care of the purchase from the leasing company and you won't have to worry about the tax issue.
If you do trade the car at a dealer, make sure you get the payoff amount directly from the leasing company so there are no shenanigans.
3. Return Vehicle and Pay Penalties
You always have the option of returning the vehicle to the leasing company and paying all the penalties, but this is usually the worst option.
You will end up paying a large termination fee and the remaining depreciation of the vehicle. The leasing company will sell the car at wholesale auction and reduce your payout by this "realized value". The problem is, this is the lowest amount you could possibly get for the vehicle.
It's much better to buy and sell the car yourself. If you're desperate to get out of the lease, it's probably due to financial reasons so it makes sense to try to save as much money as possible.
4. Ask Leasing Company for Help
If you're in financial trouble, but you feel that you can get back on your feet if given a few months, before you terminate your lease early it's worth contacting the leasing company to see if they will offer payment relief for a few months.
In some cases, they will agree to lower your monthly payment or even temporarily suspend it. You will of course have to make up the difference later on, but this is a great opportunity to get back on your feet without incurring extra penalties.
Usually, the only way they will agree to something like this is if your only other option is to default on the lease, in which case your leasing company will incur extra costs.
5. Default on the Payment
If you don't care about your credit or being sued, you could always just stop making payments. This ultimately will give you more trouble than it's worth so make sure you exhaust all your options before resorting to this.
After seeing the hassles and costs you will need to go through when terminating your lease early, you may find that simply keeping the car and paying the monthly payments may be your best option if you can afford it.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid