How Do I Get Out of My Car Lease?

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Starting a car lease can be an exciting endeavor. Leases can allow you to drive a new car for a few years with lower payments than what you’d make if you’d purchased the car and gotten a loan. The maintenance costs over time are lower on leased cars, too, and you won’t need to worry about reselling the car or trading it in when you reach the end of the lease. But what happens if you need to end your car lease earlier than anticipated?

Fortunately, you have options when it comes to getting out of your car lease. The method that’s right for you will depend on your financial situation, your preferences and other circumstances, so it’s important to understand what each one involves. Take a look at the common options for ending car leases to learn more about which could best suit your needs.

Lease Termination

Terminating a lease means you end your lease contract early, before the term is up, and return the car to the dealership. Your existing lease contract likely outlines factors like the circumstances under which you can terminate the lease and any termination fees you’ll owe upon ending the lease. Usually, fees are lower the later you are in the lease period and higher the earlier you are in the lease period. 

In addition to a set termination fee, the leasing company can also require that you pay off the rest of the lease payments or owe another amount of money related to the balance on your lease or the depreciated value of your leased car. Because terminating your lease might leave you owing more money, this option may make the most sense if the others aren’t suitable for your situation, such as if you’re moving. Terminating a lease generally isn’t the most financially favorable option because of the potential fees involved. Be sure you understand the termination policies in your lease before pursuing this option.

Lease Buyout

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To complete a lease buyout, you purchase the car from the leasing company in the middle of your lease. (When your lease has a purchase option, you’d normally buy the car at the end of the lease if you wanted to own it.) You’ll pay the remaining lease payments, the car’s residual value and any other fees at the time of purchase. The residual value is the original price of the vehicle minus depreciation.

Depending on the value and age of the car, you may be able to purchase a car through lease buyout for less than the going market value. If you keep the car, you own it, and you don’t have to make any more payments unless you take out a loan for the lease buyout. If you sell the car later on, you may be able to earn a profit. This strategy works well if you either want to keep the vehicle for several years or see an opportunity to profit from selling it. 

Lease Trade-In

This is a good option if you’re ready to get a new car immediately. The dealership you want to buy the new car from can pay for you to get out of the lease and buy the car from the leasing company. Then, you get trade-in credit for the car you were leasing to go towards the purchase of your new vehicle. If the dealership had to pay more than it considers the car to be worth to get you out of your lease, it can add the difference to your new car loan. You can complete this process with the same dealership from which you leased the car or with a new dealership.

Your loan amount could potentially exceed the value of the new car. While dealer financing may allow this, some banks and credit unions may decline to finance a loan that includes anything more than the cost of the new car you’re buying. Since the new car is their only collateral, the lender would stand to lose money if you default on a loan worth more money than the car itself. 

Lease Transfer

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A lease transfer is a method of transferring your existing lease to another person. The company you initiated the lease with has to agree to allow the transfer; some leasing companies don’t permit this practice, or they might only allow it after a certain amount of time has elapsed.

You must tell the leasing company of your intent to transfer the lease and identify the person you want to transfer it to. That person needs to apply with the leasing company, and they have to have a good credit score. If the leasing company agrees, you and the new person sign papers, and you have to pay a lease transfer fee. The cost of the fee depends on the terms of the contract you signed to start the lease, but it’s usually cheaper than the fees for terminating the lease.

Finding a person to transfer your lease to isn’t always an easy process, but there are online marketplaces that can connect you to people who want to do this. You can also connect with people via local auto clubs or online message boards to gauge interest.

What Are Some Pros and Cons of Ending Leases Early?

It’s relatively easy to get out of a car lease, but it can also become costly. The amount you’ll pay depends on the terms of the lease, the value of the car and how many months are left on your original lease agreement. The pros and cons of ending a car lease early can be equally individual and circumstantial. There are some scenarios in which ending early is the only option. You may be moving, and your lease may not allow you to take the car to another state; in that case, your only choice might be to terminate.

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Additionally, ending a lease early may not always be the best option if you find yourself having difficulty making the payments. Depending on the timing, you may be able to buy the car, sell it and make a profit. Rolling the cost of ending the lease into a new car loan for a lower payment can spare your credit in the short term because you won’t have missed payments from the lease appearing on your credit report. In the long-term, however, you’re still paying for the lease through the new loan, and you may end up paying more. 

Depending on the circumstances, you can profit from ending a lease early. In other cases, you end up paying fees without owning the car in the end. If you’re considering ending a lease, talk to your leasing company to determine what your options are and how much it’ll cost. In times of low inventory, dealers and manufacturers may be willing to waive some of the fees associated with ending a lease. Calculate the total cost of each option before making your final decision.

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