How to Get Out of a Car Lease Early
You’ve discovered your leased car isn’t cutting it for your large family or your budget, and you need to figure out how to get out of a car lease early. Breaking a lease early could result in a huge financial penalty, but there are ways to terminate your lease with the fewest costs and least amount of pain possible.
1. Trade it in
If you trade in your lease, the dealer could give you an offer for the leased vehicle like it would with any trade-in. You would still be breaking your lease, but you would be doing so by having it bought out. As a bonus, if your car has equity, you could use it as a down payment on your next vehicle.
The biggest risk here is negative equity due to depreciation and potential fees. New cars can depreciate by 23.5% of their manufacturer’s suggested retail price (MSRP) in their first year of use, according to Edmunds. While automakers don’t reveal general early lease termination charges, there are several ways to lessen this type of potential loss:
- Get the highest amount possible for your leased car. For tips, here’s how to trade in your car.
- Get a good deal on your new vehicle through car price negotiation tips. You could potentially take advantage of new car incentive programs or used cars’ lower prices and slower depreciation, which could allow a lower payment and limit the accumulation of negative equity.
- Cover any remaining negative equity with a down payment. Cash is king in many ways.
2. Transfer it
There are many websites where you can advertise your lease to people who are looking to take one over, which is called a lease transfer or a lease takeover. These sites include:
Some people would be happy to take over your lease because it can be cheaper than starting from scratch. Here are a few steps to follow.
Check with your leasing company
You’ll first need to see if it allows transfers and whether there are any requirements for a new lessee. Some companies are more accommodating than others.
Determine fee costs
You’ll probably still have to pay transfer fees to the lender (and the website service if you use one). The service might charge you for the advertisement to find the new lessee and, ultimately, a commission fee upon transfer. These fees may add up to a few hundred dollars, which is still much less expensive than typical early lease termination fees, which can be in the thousands.
Look at tax costs
There may be taxes that the new lessee has to pay. But the car will have to be titled and registered in their name with their state’s department of motor vehicles (DMV).
It’s not uncommon for people who have high lease payments to offer incentives for others to take over their lease, such as covering transfer fees or paying a month ahead for the new lessee. It might also be helpful to mention in a lease takeover ad that the new driver may be able to take advantage of rebates or special incentives that are only offered to leaseholders when the lease ends.
3. Sell it for enough to cover the buyout
If a transfer sounds too complicated, you may be able to sell it outright. There are two possible ways to do this:
Advertise your car
Find out from the leasing company how much it would cost to buy the car — fees and penalties included — and then advertise it. Put it up for sale at the total lease buyout price using your preferred method:
- Social media channels
- Used-car buying sites such as Craigslist or Autotrader
- Old-school classified ads in your local newspaper
The new buyer pays you, you pay the leasing company and the new buyer gets the car, which allows you to get out of the lease.
Buy it outright, then sell
Depending on the leasing company, the person you find to buy the car could buy it from the leasing company with your official blessing, or you might have to buy it first, turn around and sell it.
4. Use the Servicemembers Civil Relief Act
If you need an early termination of lease because of military duty, you may be able to under the Servicemembers Civil Relief Act (SCRA).
The act is designed to ease financial burdens on U.S. service members who have to rearrange their personal lives. Contact the lender and tell them about your deployment or relocation orders. Also, ask what paperwork you need to provide. If you’re having trouble or need more information, you can learn more about the SCRA from the Department of Justice.
5. Use the lemon law
If the reason you want to go about breaking your lease early is that the car has had multiple or major problems, look up your state’s lemon law.
Vehicle lemon laws protect consumers from buying or leasing vehicles that, in effect, don’t work. Each state has specific requirements for a vehicle to be considered a lemon and specific steps you have to take before you can demand the seller take the vehicle back and refund your money.
We’ve looked at how to avoid buying a lemon for your next car. You could also check your state DMV or state attorney general’s website for the specifics that could apply to you.
6. Return it and pay the penalties
If all else fails, return the car to the dealer and end the lease early. Incur the fees and penalties as necessary, setting up a monthly payment plan if you can’t pay them outright.
Doing this is probably better for your financial situation than having the car being repossessed or declaring bankruptcy.
Early termination fees and penalties
Leasing companies mainly want to ensure they get the full value of what the vehicle was worth when it was new. Many lease contracts state that the lessee would be responsible for the difference between what they owe for the rest of the lease and what the car is worth wholesale. A Mazda lease contract details:
Say you had a Mazda CX-9 and wanted to end the lease early. If the rest of your lease payments add up to $18,000 and the vehicle’s wholesale fair market value is $15,500, your early termination fee would be $2,500.
There are other details that could make your early termination fee larger or smaller. If you made any refundable security deposits for your lease, they would be put toward your termination fee, meaning you’d owe less. Refunds on any extra warranties or insurance products could also be put toward what you owe. However, the lease provider could charge you what it has to pay for the transportation, reconditioning and preparation of the vehicle to resell it.
When you turn in a lease at the agreed-upon date, this cost to resell the car — typically $300 to $400 — is usually represented as the lease disposition fee.
There are alternatives if the above methods don’t look like they’ll work for you.
Ask to lower or suspend payments
This option doesn’t involve breaking your car lease. But it could make the lease more financially bearable if you’re having trouble making payments.
Talk to the leasing company. Don’t be embarrassed if you’ve run into financial trouble. Focus on a solution. It’s certainly better for you — and the lender — to suspend payments rather than stop paying altogether, leading to a possible repossession.
The lender would have to pay to repossess the car, process the paperwork and sell the car at auction, usually for a loss. You don’t want to have a nonpayment or repossession on your credit report.
Default on your lease
Defaulting on your lease is a possibility, but it should be the last option. If you do this, the lease provider will repossess the vehicle and your credit will likely be severely negatively affected.
When should you break your lease?
Breaking your car lease may be a good idea if you want another car or no car at all and you can save more money by doing so. If you’re looking for another car to replace your lease, use the 20/4/10 rule as a car-buying guideline: You should put 20% down, finance for no more than four years and keep total transportation costs to under 10% of your budget.
The best way to get a good deal on your APR in a new car loan is to shop around. You won’t hurt your credit score by applying to multiple lenders for an auto loan any more than you would if you applied only once — as long as you submit all your applications within a 14-day window.
Possible lenders include your bank or credit union. Consider filling out an online form at LendingTree, which could provide up to five potential auto loan offers from lenders depending on your creditworthiness.