How to Get Out of a Car Lease Early 2021 Updates
If you want to get out of your car lease early, you usually have a few options to consider. However, terminating your lease early is one method, but they are other ways it can be done too.
A car lease gives us the luxury of making spread-out payments for our dream car. At the point of collection, we’re as happy as a swan, but after faltering on the pay, you want to get out fast.
One of the advantages of a lease is supposed to be convenience, but all of that is thrown out the window if you terminate early. Let’s take a look at your options.
Ways to Break a Car Lease
1. Lease Transfer or Swap
The swap consists of transferring a lease agreement, as is, to another party. This new lessee will take over the payments and become responsible for the vehicle.
Ending a lease early with this method has the lowest cost because only the administrative fees are included in the transaction.
The original lessee can then walk away from the lease agreement, avoiding a possible major financial hit, without any scratches on their credit bureau.
There is a disadvantage to this option if there was a down payment on the original agreement.
The cash down will be transferred to the second lessee, who will enjoy lower monthly payments, and the first lessee will lose that money from the original transaction.
2. Early Lease Buyout
There is always the option in a car lease to buy out the lease early from the dealership or the financial institution. The price of the purchase is an outstanding balance, the residual value, and sometimes the applicable taxes.
It is possible that the lessee did accumulate equity and the vehicle is worth more than what it cost to buy out. In that case, the lessee wins on such a transaction by selling it on the market after.
It will cover the purchase costs and the lessee may make a profit.
However, this situation rarely happens at the beginning of the term, because the vehicle depreciates too quickly in the first two years.
Gaining positive equity on the vehicle in the case of a car lease mostly happens towards the end, or doesn’t happen at all if the residual value is set too high.
You can always try to predict a gain or a loss in time if you calculate the depreciation of a vehicle vs. its outstanding balance.
3. Changing Car Lease
You can ask to terminate the lease with your present car by changing it for a new one and starting a new car lease. This option isn’t accomplished by dismissing the situation on the first car.
The amount left to pay on the first lease, i.e. the capital balance, the residual value, and the taxes, will be taken into consideration.
If the market value of the vehicle is lower than what is left to pay on the lease agreement, the difference will be transferred to the new lease, which will have the opposite effect of cash down.
This means the price of the new vehicle will be increased with the negative equity originating from the old vehicle. The lessee will end up paying the depreciation on two vehicles.
4. Returning the Vehicle
You could always bring back the vehicle to the dealership or the financial institution.
However, to fulfill your obligation and avoid damages to your credit bureau, you have to continue making your monthly payments until the end, even if you don’t possess the car, and pay the fees of excess mileage and excessive damages.
This option forces you to pay for a service that you don’t take advantage of, which can be very frustrating.
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5. Repossession
This approach will burn your credit file, and it will be very difficult after finding another car lease with any institution.
If you end up being accepted with another institution after the repossession, you will be considered a second chance credit applicant (if this was the first time) and interest rates will be set very high.
The money you saved by not paying the vehicle will reappear later with higher interest fees on a new car lease.
What are the Potential Penalties?
Leasing companies don’t want you to terminate early. As such, they typically charge you some seriously hefty penalties for some or all of the following:
- Any lease payments remaining – you need to pay what’s left in your lease agreement. So, if you cancel at 12 months on a 24-month lease, you will have to make up the 12-month difference. If you pay £200 a month, that’s £2400. Ouch!
- Early termination fee – A fee you pay to the lease company for the hassle of processing a lease termination.
- Costs to get the car ready for sale – This is a penalty for the lease company having to sort out the car to make it presentable to sell – fixing scratches, getting the car cleaned, etc.
- Storage of the vehicle – Including transportation to put the car into storage. It costs the lease company money to store the vehicle, assuming they don’t want to sell it right away. They won’t be happy footing the bill so this falls to you!
- Taxes associated with leasing – You might have to pay any outstanding tax left on the car (road tax).
- Negative equity – In some particularly harsh lease contracts, they will charge you the difference between the lease amount and the residual value of the car.
It’s worth noting, your early termination penalties most likely won’t include all of the above, but in pretty much every lease you will be required to, at the very least, pay the remaining payments and an early termination fee.
So What’s the Best Option?
Whatever is the cheapest for your circumstances!
To recap, if you decide that you absolutely want out of your lease, whether you can’t pay or just want a new vehicle, you should take the following steps:
- Work out what your penalties will be for early termination. Read over your lease contract and calculate what the fee might be.
- If this fee is astronomical, work out the buyout price of your car and the current market value. If this is cheaper than the penalty fees, then happy days. Also if it’s not, you might need to take one of the other 3 options.
- Transfer your lease to someone else using a website like Swap-A-Lease.
- If you’re in a bad spot and are completely stuck and can’t pay the lease payments, then give the vehicle up for voluntary repossession and seek some advice on how to handle the debt.
Of course, the best option is to not need to end a car lease early at all! Make sure you take out a lease that is affordable for your budget, and that you’re not struggling to pay.
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