How to Get Out of a Car Lease
Leasing, rather than buying a car outright, has become popular in recent years as a way for cash-strapped consumers to make driving a new vehicle more affordable. Monthly expenditures and down payments are usually cheaper, but leasing is not without pitfalls.
One of the biggest disadvantages to leasing a car is that it can be difficult and costly to get out of a lease early, regardless of whether you suffer financial hardship or your vehicular needs change. With a purchase and finance arrangement, you can usually sell the vehicle and use the proceeds to pay off the loan without penalty. However, a new-vehicle lease is considered binding for the length of the term.
Depending on state regulations, that means someone looking to break a lease would have to make a payoff amount equal to all remaining payments, along with an early termination fee of at least a few hundred dollars and a separate charge to prepare the vehicle for resale. Since the vehicle will likely be worth less than the payoff amount, the lessee may also have to cover the difference between what’s owed and its current value.
In a worst-case scenario, if you lose a job, get divorced or suffer a budget-busting illness and can no longer afford the lease payments, you could be forced into bankruptcy. Your credit score will plummet and it will become difficult to lease or finance another car or obtain a home mortgage.
That doesn’t mean that you’re without options if you need or want to get out of a car lease it’s just not easy, nor is it cheap. Here are five ways you can get out of a lease.
1. Strike a Deal
As with any credit problem, the first path to resolution is to contact the debt holder, in this case, the leasing company. Explain the situation and see if they’ll work with you to help avoid a default. They may agree to reduce or suspend the monthly payment for a brief period to help you through a rough financial patch. This will, of course, extend your payments and you’ll be charged interest on any delayed amounts. If you’re an active member of the military, you may be able to terminate a lease without penalty under the provisions of the Servicemembers Civil Relief Act if you’re deployed or re-stationed.
2. Sell the Vehicle
The original lease agreement may include what’s called an early buyout provision that allows you to sell the vehicle to a private party and use the proceeds to pay off the remaining balance. You’ll usually get more money from a private sale than you will if you default on the lease or trade it into a dealership early. Check your vehicle’s CARFAX History-Based Value to see what you can expect if you decide to sell. Additionally, be sure to check with the leasing company ahead of time to determine the buyout amount and any requirements there may be. These costs usually include the aforementioned early termination fee and reconditioning charge, as well as any negative equity.
3. Purchase the Vehicle
If you have enough cash on hand and/or can qualify for a loan that’s sufficient to cover the costs involved, you may consider buying out the contract yourself. You can then either keep the vehicle or sell it to another party. Though you’ll still have to come up with the early buyout amount, this can be a money saver if you’re racking up many more miles than the lease originally allowed. Excess mileage charges due at the end of a lease can be prohibitive, running anywhere from $0.15 to $0.30 per mile over the limit. If you’re going to rack up an extra 15,000 miles by the time the lease is up, you could face a penalty of $2,250-$4,500. Likewise, if you decide to purchase the vehicle, and it is damaged, you’ll avoid having to pay a hefty wear-and-tear fee for reconditioning when you return it at the end of the term.
4. Trade-In The Vehicle
An easier way to terminate a lease, especially one with a nominal number of payments remaining, is to trade in the vehicle to a car dealership and either buy or lease another one. This may be the best route if your financial situation has improved and you’re looking to trade up into a more expensive model. However, any necessary charges incurred will be wrapped into the new monthly payments, which means you’ll essentially be paying for both cars. Of course, this may not be an available alternative if your financial situation is dire, or if your creditworthiness is sub-par.
5. Swap the Lease to Another Party Via the Internet
Another way to get out of the contract is to transfer the lease to someone else for the remainder of the term. This is typically subject to the lease company’s prior approval and other provisions. Online lease trading companies like Swapalease.com and LeaseTrader.com have been established in recent years to help facilitate these kinds of transactions.
You’ll usually be charged a small up-front fee for listing the vehicle, with another payment made after an interested party is found and the transfer is initiated. You may also owe the leasing company a transfer fee and have to cover the cost of registration. Unfortunately, if your lease payment is prohibitively high, you may also have to offer a financial incentive that can range from a few hundred to several thousand dollars to help attract a sublessor. Also, be sure to check the fine print, as you may still be liable if the new leaseholder defaults on his or her end of the deal.
Ultimately, you should probably avoid leasing if you’re not on solid financial footing or if there’s a chance you’ll undergo a significant life change before the contract expires. You may have to find a more economical pre-owned vehicle to help cut your up-front and ongoing costs, but you’ll prevent what could be a devastating financial development down the road. To that end, CARFAX Used Car Listings can help you find a wide selection of affordable pre-owned models in your area.
If you have questions about this story, please contact us at Editors@carfax.com