There are a number of reasons why you might want to get out of your car lease early. Maybe you just lost your job, and the payments are too much to keep up on. Maybe the car isn’t as great as you hoped it would be, and it’s just not fitting your needs anymore. Or maybe, you want to be done with leasing and simply own the car outright. Whatever the reason, you have decided that you need to make a move and get out of your lease as soon as possible. So how do you do it?
If you are wondering how to get out of a car lease early, these are the three main options: transfer the lease, return the car, or buy the car.
Transfer the Lease
A very popular option to get out of a lease early is to transfer your lease to another person. Websites such as leasetrader.com and swapalease.com can help match you with someone looking to take over a lease.
It is important to look at your lease agreement however, as not all leases permit a third party transfer. Furthermore, you must ensure that it is legal to do so in your state. The new lessee must also meet the lender’s requirements. If you are able to transfer the lease, you will most likely be held responsible if the third party stops making payments. You will also be required to pay any transfer fees, which can range from $500 to several thousands of dollars.
It is common to offer incentives for people to take over your lease as well. An extra $500 to anyone willing to take over your lease might convince someone who is on the fence that taking over your lease is a good move. All of these costs add up for you however, so be sure to compare the costs between a lease transfer, early termination, and lease buyout.
Return the Car
The simplest way to get out of a lease early is to terminate the lease agreement and return the car. This can also be the most costly option. When you terminate a lease early, you may be responsible for all or some of the following:
Early Lease Termination Fee
Early lease termination fees vary widely from lease to lease. They are often based on a sliding scale, making it more burdensome to pay off the earlier you are in your lease. For example if you terminate your lease in the first year, you may be required to make three additional monthly payments, whereas if you terminate your lease in the second year you may only be required to make two additional payments. Review your lease agreement thoroughly to determine your responsibility.
Remaining Payments on your Vehicle
You may be required to pay all or some of the remaining payments on your vehicle. This is potentially the most expensive part of exiting your lease early. If you decide to terminate your lease with 18 months left on your contract and your monthly payments are $300, you may be on the hook for $5,400 in addition to the other fees associated with termination.
Any Costs Related to Resale
The lease agreement will often require you to pay a disposition fee, which covers any costs associated with reselling the car. This could include getting the car thoroughly washed and detailed, fixing any cosmetic dings, and performing any necessary maintenance. This can range from a few hundred to a few thousand dollars depending on the condition of your car.
Taxes Associated with Leasing
If there are any additional taxes associated with the lease, you will be required to pay those. This will vary greatly state to state.
Negative Equity Between Your Lease and the Current Market Value
Negative equity is when you owe more than something is worth. This is also referred to as being “upside-down” or “underwater”. When it comes to a lease, it means that your monthly payments are not paying down the balance of the lease faster than the car is depreciating. Your lease agreement might require you to pay some or all of this difference in the car’s value.
Storage and Transportation of Your Vehicle
Any costs related to the physical removal and storage of your vehicle will be your responsibility to pay.
As you can see, all of the lease termination fees often make this the most expensive and least practical way to get out of a lease early, but it is definitely the most straightforward.
Buy the Car
Sometimes the most financially beneficial way to end a lease early is to buy the car from the lender. If you have the capital to do this outright, you can simply buy the car and pay for any associated fees. If you do not have that amount of cash on hand, you can opt for a car lease buyout loan. Here is how to buy your car from your lease agreement.
Determining Your Car’s Value
Every car lease has a residual value that is listed in the loan agreement. The residual value of a car is based on your car’s expected depreciation over the life of your loan and is predetermined by the leasing company. It is usually non-negotiable. This is the number that you are bound to should you choose to buy your car.
It is important to also look at your car’s market value. This is based on the demand for your car, and will give you an idea of how much you can get if you resell the car. It is important to know what the market value is of your car to determine if it makes sense to purchase it. If the residual value of your car is $13,000, but the market value is $11,000, it would mean that you are paying $2,000 more than what your car is worth.
Consider these values and determine if a car lease buyout makes sense for you. Maybe you want to keep the car for yourself and you are comfortable with paying for the residual value. Or maybe you want to resell the car, and you will still make money on the transaction based on the market value of the car.
Other Considerations for Buying Out Your Lease
Buying your car from your lender can release you from fees that you might otherwise have to pay. Leases often include charges or penalties for the following:
Excessive Mileage. Most leases have yearly mileage limits, and if you exceed that mileage amount, you can be paying huge penalties. These penalties can range from $.10 a mile to $.30 a mile, which can add up to several thousands of dollars if you drive a lot.
Wear and Tear. When your car is turned in after your lease is over, it is subject to inspection. Dealers will charge you for any external dents, stains to the interior, and anything else they think will hurt resale value. These fees can vary greatly depending on the condition of your car.
Disposition Fees. Dealers will usually charge you a disposition fee, which covers all costs associated with reselling your car.
Think of all of these fees as money that can be put towards buying your car from your lease. If the fees add up to $3,000, it might make sense to take that $3,000 and use it to invest in the purchase. It is always a good idea to call your lender directly and find out exactly how much it will cost you to buy your car from your lease.
Obtaining a Lease Buyout Loan
If you’ve done the math and determined that buying out your lease is the best way to terminate your lease early, you may need to obtain a lease buyout loan. Not all lenders offer this type of loan, but at AutoApprove we work closely with lenders that provide these loans and will work tirelessly to find you the best rate possible. To get a lease buyout loan, you will need to take the following steps:
Call your existing lease company. First, find out how much it will cost to buy your car. Tell them you are looking to buy out your lease and see if they provide that service.
Shop around for rates. At AutoApprove we can jump start this process for you and help you start comparing rates.
Call your existing lease company, again. Give them a chance to beat any competing rates that you may have found.
Sign the papers and notify your insurance company. Make sure all of the necessary papers are signed, and tell your insurance company about the new lender. Since you will no longer have a lease, you may be able to reduce your coverage and your monthly payments, as you will no longer be required to have high liability coverage.
Keep it or sell it. Now that it’s yours, you can decide if it’s worth keeping it, or selling it and keeping the profit.
It is not always easy to get out of a lease early, but there are options available to do so.
The best option will depend largely on your financial situation, but it rarely makes sense to terminate the lease outright. Finding a third party lessee or securing a buyout loan will often be the most beneficial options. If you are interested in obtaining a car lease buyout loan, be sure to contact AutoApprove today to get more information.