If you are wondering how to get out of a car lease early, there are three main options to consider: transfer the lease, return the car, or buy the car.
Which you choose will depend on the details of your lease, the vehicle, and your finances.
Read on to learn about each option, how it works, and why someone might choose or avoid it.
In this article, we’ll look at:
Reasons to end a car lease early
Transferring a car lease
Ways to terminate your car lease
Considerations for buying out a lease
What you need to know to get a lease buyout loan
There are a number of reasons why you might want to get out of your car lease early.
For example:
You just lost your job, and the payments are too much to keep up
The vehicle you leased isn’t fitting your needs anymore
You want to be done with leasing and simply own your car outright
You’re worried about excess mileage fees
These are all valid reasons, and they’re not the only reasons. Plans change, things happen, and unexpected events can throw us totally off-course from what we thought we needed in our daily lives.
When it comes to the terms of your auto agreement, a lease might have seemed like a good solution at one point; yet, due to circumstances out of your control, being in a car lease no longer makes sense for you.
Fortunately, tons of people find themselves in a similar predicament each year, which is why it’s not uncommon to want to learn how to get out of a car lease contract early.
Still confused? Here are a couple frequently asked questions about reasons to end your car lease before it’s up.
When you get a lease, it often includes a maximum number of miles you’re allowed to drive per year. If you stay under that mileage, some lenders will give a small refund for preserving the car. If you go over it, however, you’ll get charged a fee per mile, payable at the end of the lease. This is because the mileage affects the value and wear and tear of the car.
For example, let’s say you had a 3 year lease with a maximum annual mileage of 12,000 miles at a rate of $0.25 per mile over the limit, and you average 14,000 miles per year.
You would be 2,000 miles over every year for three years, so you would owe:
(2,000 x 3) x $0.25 = $1,500.00
$1,500 at the end of the lease. It can really add up!
Many people buy out their leases to avoid these excess mileage fees. That’s been especially true in the past several years, since used car values increased during the pandemic and have stayed elevated. This may make your current vehicle’s value higher than the dealer thought it would be at the time the lease was signed.
That really depends on your unique situation. In many cases, people choose it because they feel they have no other choice. Figuring out how to get out of a car lease agreement early can be a costly and lengthy process. However, if the cons of staying in your lease outweigh the costs and challenges of getting rid of it, then it makes sense to stay the course.
If you have decided that you need to make a move and get out of your lease, make sure you really take time to weigh your options, and don’t agree to anything without hearing the final numbers on what you’ll owe or receive. Don’t be afraid to demand hard numbers from your leasing company: it’s a service they owe you as your lessee.
So, with all that under consideration, how do you get out of a car lease early?
The short version is, you can do one of three things:
Return your vehicle
Transfer your lease
Buy your vehicle
Let’s break down each option.
The simplest way to get out of a lease early is to terminate the lease agreement and return the car. However, this is also often the most costly option.
When you terminate a lease early, you may be responsible for all or some of the following expenses:
early lease termination fee
remaining payments on your vehicle
any costs related to resale
taxes associated with leasing
negative equity between your lease and the current market value
storage and transportation of your vehicle
Since a car’s value typically depreciates more upfront, the earlier you terminate the lease, the higher the cost is going to be on your end. In many cases, the termination cost may be so high that it makes more sense for you to complete the lease as agreed upon.
Remember that the Consumer Leasing Act does mandate that all of these details are included and available for you to review in the lease you have on record.
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.
You may be required to pay some or even all of the remaining payments on your vehicle. This is potentially the most expensive part of exiting a 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.
Lease agreements typically 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 terms of your lease and the condition of your car.
If there are any additional taxes associated with the lease, you will be required to pay those. These costs vary greatly from state to state so you’ll want to make sure you know how much you’ll owe in taxes before making any decisions.
Negative equity is when you owe more than something is worth. This is also referred to as being “upside-down” or “underwater” on a loan. 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.
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, though it is definitely the most straightforward.
A very popular option to get out of a lease early is to transfer your lease to another person. It is important to look at your lease agreement, however, as not all leases permit a third party transfer.
Websites such as leasetrader.com and swapalease.com can help match you with someone looking to take over a lease. However, 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 about whether taking over your lease is a good move.
This option may be less expensive than returning your car early, but will still come with hidden fees, like the lease transfer fee and other costs that will pop up. You should do your due diligence and make sure you have a full tally of all associated costs before choosing to transfer your lease.
Be sure to compare the costs between a lease transfer, early termination, and lease buyout before making any final decisions.
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.
Depending upon the details of your vehicle and loan, buying out your vehicle entirely may be you best option for early termination. Yes, there are still fees involved, but it’s worth running the numbers to compare this option against the others.
Many people who need or want to get out of their car lease option pick buying their vehicle outright (or getting financing to do so) because, unlike the other options, you get to keep the car at the end of the process. This means that you can either keep and use the vehicle or resell it, recouping some of the costs involved.
Let’s take a closer look at how buying your leased vehicle works.
Determine your car’s value
Check for excess mileage, wear and tear, and disposition fees
Obtain a lease buyout loan, if necessary
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.
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.
Call your existing lease company.
Shop around for rates.
Call your existing lease company, again.
Sign the papers and notify your insurance company.
Keep or sell your vehicle.
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 Auto Approve we work closely with lenders that provide these loans and will work with you to find your 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 the vehicle is 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 thos ewho want or need to do so. The best option for you will depend on your unique situation, but it rarely makes sense to terminate the lease outright. Finding a third party lessee or securing a buyout loan is the most beneficial option for most lessees.
The worst thing you can do is agree to one of these options without knowing the final financial figures, so be sure to do your research.
And if you are interested in obtaining a car lease buyout loan, get in touch Auto Approve today to get more information on how our experts can help you navigate the process and find a great deal from one of our trusted lenders.