A lease agreement on a car is a legally binding contract, but most binding contracts nonetheless have escape clauses. That’s the case with auto leases as well, but it could cost you a bit of money to get out early. You have a few options.
How Does a Car Lease Work?
Signing a car lease isn’t much different from renting an apartment. You’re required to make some sort of down payment, just as you would put down a security deposit on the dwelling. You agree to make monthly payments toward the use of the vehicle for a period of time, and you’ll give the property back at the end of that term. Your payments don’t give you any ownership interest.
But an apartment lease will typically be for a one-year term, while an auto lease will most likely be for three or four years. And the calculation of your monthly lease payment is different. The dealer will start with how much the car is worth on the day you take possession of it, and will subtract its likely value at the end of the lease term due to depreciation. Your lease payment would begin at about $416 if the difference is $15,000 and you’re taking on a three-year lease.
Interest and other fees are tacked on to that $416, and there might come a time when you simply can’t afford that any longer. Or maybe your lifestyle has changed, and your leased car is no longer suitable. You can end the lease in a few ways, but some will require more cash out of pocket than others.
Read More: How Does a Car Lease Work?
Buy Out the Lease
You might consider buying out the lease. Your lease agreement might even provide for this eventuality, setting a purchase price. You’ll need either cash or an auto loan to pull this one off, and taking on an auto loan wouldn’t be appropriate if you don’t want to keep the car. And parting with the cash to buy out the lease generally only makes sense if the fair market value of the car is more than what you still owe on the contract.
You’d have $6,500 invested in the vehicle if it’s worth $10,000 and you only owe $3,500. But now the car is yours. The flip side is that you’ll have negative equity if the vehicle is worth $10,000 and it will cost you $13,500 to terminate the lease, probably not a position you want to find yourself in.
Sell the Car
You might be able to either sell the vehicle to a private party and use the proceeds to pay off the lease, or you might sell it after you buy out the lease. The first option might require finding a buyer who's willing to work with you and pay you in advance so you can use the money to end the lease. A family member or friend might be willing to do this to help you out. You could also come up with cash out of pocket to terminate the lease in advance and hope that the buyer is still waiting in the wings to pay you after that’s been accomplished.
You’re not limited to selling to a private party. A less complicated scenario might be to sell the car to a dealership if it’s worth at least as much as what the buyout would cost you.
The success of buying out the lease first assumes that you don’t have negative equity in the car so you’ll come out of the deal relatively whole. You can take that $10,000 you sold the car for and you’re $6,500 ahead if you only owed another $3,500 to get out of the lease. But the early buyout price will most likely include more than just your remaining lease payments. There will probably be early termination fees, and you might have to make up the difference between those remaining lease payments and the car’s residual value – what it would have been worth at the end of your lease term if you had stayed on the lease.
Read More: How to Trade in Your Car With Negative Equity
Find Someone to Take Over the Lease
You might also be able to get out of the lease by transferring it to another individual. That friend or relative might not have the means to buy your car, but they might be able to assume your lease and take it over. And companies abound on the internet that will transfer your lease to another party, taking care of all the associated paperwork. LeaseTrader.com and Swapalease.com are two of the most well-known. Edmunds indicates that both have been facilitating lease transfers for about 20 years.
This option can be tricky, however, because not all leasing companies are amenable to the idea and you’ll need their approval. They might continue to hold you financially responsible for the terms of the lease even though someone else is now making the payments. This could mean being responsible for excess wear and tear fees even if someone else actually put the miles on the car. This is referred to as “post-transfer liability,” and Edmunds indicates that approximately 20 percent of car leasing companies include these terms in their lease contracts.
The process isn’t free, either. You might have to pay a membership fee to the site, and you’ll probably have to pay to list your lease on the website. You might have to pay an additional fee when a taker is found before the company will begin the transfer process to that individual. You might also have to pay registration fees, or a fee for the company to check the potential lease-taker’s credit, although the individual taking on the lease is often charged with these costs instead.
You might also have to throw some cash at the taker, too, if your lease payment is particularly high, or perhaps agree to make the first couple of lease payments for them after the transfer.
Trade the Car In
The viability of this option can depend on exactly why you want to get out of your lease. You can trade the car in for another if it’s not appropriate for your lifestyle any longer, or if there’s another vehicle out there that you’d rather have.
You might return to the dealership where you leased the car in this case. You can purchase or lease a new vehicle, and the remaining fees and payments on your lease can be rolled into the new contract. Of course, your new car payments will be more than your existing lease payments, but at least you’ll be able to pay off that financial hit over time.
This option is usually best if you only owe a few more payments on your lease. Some dealers even offer “lease pull-ahead” incentives, letting you skip your last three payments if you immediately roll over into a new lease.
Read More: Leasing a Car Vs. Buying a Car
Just Return It to the Dealership
Simply returning the vehicle to the dealership can be a last-ditch option. You’ll most likely be charged penalties in addition to having to make all remaining lease payments, but you can park the car in the lot, pay up and walk home – or better yet, have another ride on standby.
- J.D. Power: How to End Your Lease Early
- CARFAX: 5 Ways to Get Out of a Car Lease Early
- MarketWatch: Four Ways to End Your Car Lease Early, Without Losing Your Shirt
- Your Auto Advocate: How to End Your Car Lease Early (Explained by a Car Dealer)
- CarsDirect: Terminating a Car Lease Early
- MarketWatch: Swap Your Lease, and Other Ways to End a Car Lease Early
- Bankrate: Leasing a Car – How to Do It and Mistakes to Avoid
- Consumer Financial Protection Bureau. "What Should I Know About the Differences Between Leasing and Buying a Vehicle?" Accessed April 12, 2020.
- Merriam-Webster. "Lease." Accessed April 12, 2020.
- AARP. "To Buy or Not To Buy." Accessed April 12, 2020.
- Consumer Financial Protection Bureau. "What is a Manufacturer Suggested Retail Price (MSRP)?" Accessed April 12, 2020.
- LeaseGuide.com. "Capitalized Cost – Cap Cost." Accessed April 12, 2020.
- Autotrader. "Leasing a Car: Can You Negotiate the Price?" Accessed April 12, 2020.
- Edmunds. "The 'Residual Value' of Leasing." Accessed April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: Future Value." Accessed April 12, 2020.
- LeaseGuide.com. "Money Factor—Explained." Accessed April 12, 2020.
- Federal Trade Commission. "Financing or Leasing a Car." April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: End-of-Lease Costs: Closed-End Leases." Accessed April 12, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.