Buy The Car Then Sell It
Many car lease arrangements have a buyout provision. They will allow you to purchase the vehicle at any time during the lease for a specified sale price. They will also usually credit a percentage of the lease payment toward that purchase. This can be the least expensive way to get out of the car lease.
In order for it to make sense, the resale value of the car has to be equal to or more than the buyout price of the car. For example, say you are three years into a five-year car lease, and the vehicle has a buyout price of $18,000. You can make the purchase and then sell the car. But only if the resale value of the car is $18,000 or more.
If you go this route, plan to sell the car to a third party. Trading the car to a dealer will only get you the wholesale value, not the resale value.
Even if the car lease provides for a buyout, there may still be an early termination fee, unless the dealer or leasing company chooses to waive it. But it might still be worth doing a buy/sell of the car even if the cost of doing so is a few hundred dollars. That will likely be the least expensive way to get out of the lease.
Take The Early Buyout Option
Part of the appeal of a lease is that if you decide at any time that you want to purchase the vehicle youre driving instead of just making monthly payments on it, you have the option of doing so through the early buyout mechanism, by which the company will calculate the approximate value of the vehicle youre driving as well as how much youve already paid into the lease. If youre feeling ambitious, and you have the cash, it might be worth your time to buy the car from the lessor and try to sell it.
Once you buy the car, you can try to sell it to a dealership or to a friend or family memberor someone you meet through Craigslist. Even if you lose money, you may lose less than you would have if you’d paid out the rest of the lease and penalties.
Make Payments Or Voluntarily Repossess
If you do decide that you want to get out of your car lease early, then the first step would be to read the lease agreement that you signed when you leased the car to get familiar with the fees that you might face. According to DMV.org, some of the lease penalties that you could face include:
- The remaining payments on your lease
- An early termination fee
- Transportation and prep costs to sell the car
- Storing the vehicle
- Any taxes associated with leasing
- The negative equity between your lease amount and the current value of the car
While all of these fees might not apply in your specific early lease termination case, the most likely fees that you will have to incur are the remaining lease payments plus an early termination fee. However, in some cases, the leasing company will take the car to auction and subtract the auction value of the car from the payoff amount of the car and charge you for the difference.
In either case, its important to pay the remaining amount they charge you on time because if you dont, then the leasing company will have to report it to the credit bureaus as a voluntary repossession and the will affect your credit score and report negatively.
Car Salesman | James Leynse/Corbis
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Find Out The New Lenders Requirements
If youre planning to refinance with a new lender, you might have to meet some minimum requirements first.
- When you took out your original loan, your credit score took a hit from the hard credit check. If it hasnt rebounded back, you might not qualify for a loan with a new lender or if youre approved, it might be at a higher interest rate than your current loan.
- Minimum loan amount: Lenders require a minimum amount that you can borrow. If the amount youre refinancing is below that minimum amount, you wont be eligible to take out an auto loan.
- Repayment period: Many lenders have a minimum repayment period, like three or five years. If youre set to pay off your loan in the next year or two, it might not make sense to refinance your loan, even if youre eligible. You could end up paying your loan for longer than you need to, which means youll pay more in interest overall. It also means youll be paying back a car thats losing resale value.
Learn About A Car Lease Termination
At this point, if for whatever reason you are not able to use any of the previous options listed above, you are getting into much more expensive ways to end your lease early. There are very few circumstances where it would not be better to simply ride out the rest of the lease, but if necessary you can simply terminate the lease.
This is not the same as buying out the lease, because you are not paying to purchase the car. You are just paying to end the lease, without keeping the car. This means you are paying out the remainder of the costs, fees and penalties of the lease without getting anything out of it except for getting out of the lease. In addition to the normal costs, fees and penalties you will also have to pay a very large termination fee. You might also have a penalty to your credit score if you cannot afford to make all the termination payments.
If you are in extremely unusual circumstances and this is the best option available to you, you can always talk with the leasing company and negotiate a solution. In the end you will still probably wind up paying a lot more than youd like, but depending on the circumstances they might offer some leniency in some ways. In the end you should not try terminating your car lease early without seriously trying all of the other options first. Do whatever you can to make them work, and you will save yourself a lot of money.
Did You Know?
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How Much Does It Cost To Return A Leased Car Early
When you terminate a lease early, you’ll be responsible for paying the early termination charges. These charges are the difference between how much is left on the lease and how much the car is actually worth. For example, if you still owe $18,000, and the car’s realized value is $15,000, then you will owe $3,000.
Terminating A Car Lease
Your first option for dealing with a car lease that you no longer want is to officially terminate it with the leasing company. It can be costly to break the lease, but it could still end up being the best decision if keeping the lease would cost even more over time.
You might find yourself having to pay an early termination fee when breaking a car lease. Additionally, you could lose money if there is negative equity between the value of the car and the amount left on the lease. You might also have to cover the remaining payments on the lease, and you may be responsible for other fees, too.
Before you decide if this is the best choice, you need to calculate what breaking the lease will cost you.
If you do decide you still want to go with early lease termination, first get in touch with your leasing provider. They can help you by discussing your available options and making sure that you’re aware of all of the costs involved in returning a lease car early.
They should let you know what their rules are and what youll need to do to return your car early.
If you have only just signed the paperwork and it has not yet been processed, you might be able to stop the lease from being put into place. Contact the manager of the dealership as soon as you can and explain the situation.
They might be willing to allow you to go back on your decision. This will likely be easier at dealerships that provide in-house financing.
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How Soon Can I Refinance A Car Loan
You might be able to refinance your car loan within a few weeks of buying it, but it depends on where you bought your car, your lease terms and the new lender youre considering for refinancing.
Since paperwork can take a while to process, you might want to wait until youve made at least your first payment to your new lender. This helps you avoid missing any payments so you can stay current on your loan and your credit score doesnt take a hit due to late payments.
Option : Sell Your Car To A Dealer
This is the fastest and easiest way to step out of a lease agreement. And, because the pandemic has created a shortage of used cars, your car might be worth more than you expect. TrueCars Alain Nana-Sinkam, vice president of strategic initiatives, calls this the happy path because you can just hand over the keys and walk away with no further financial obligation.
Pickups and SUVs are in high demand now, in part because of low gas prices, and might fetch a higher price from a dealer. The value and desirability of sedans and other vehicle types will depend on the popularity and availability of those brands.
Youll get your best price from a dealership selling the same brand of car youre looking to unload, advises Nana-Sinkam. So take your Honda to a Honda dealership for the best price, along with your previous research on your cars value as a gauge.
However, if your residual value was low and your payments high, you might still be on the hook for a lot of money. You may have to tap your savings. Or you might want to explore other options.
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Can Everyone Swap Leases
According to Hall, it is possible to transfer about 80 percent of leases with no strings attached. But even after a person transfers the lease, approximately 20 percent of leasing companies require the original leaseholder to retain some “post-transfer liability” for the vehicle. This means that the name of the person who originated the lease remains on the contract and the original leaseholder can be held financially responsible for unpaid balances. Such a liability could result from excess mileage charges or lease-end fees.
In these cases, the person who signed the original lease is essentially a co-signer on a loan, Hall said. If the second person defaults, the bank will try to recover the money from anyone else named on the contract.
The easiest way to see if your lease can be transferred is by reading the disclosures on your lease agreement. “Transfer of equity” is contract jargon that essentially says you’ll still be financially responsible if you transfer a lease to somebody and the new lessor fails to pay. If your lease allows for a “full lease assumption,” you can transfer your lease to a new user and wash your hands of all responsibility.
A small percentage of leasing companies don’t permit transfers at all. If you think you might want to transfer your lease down the line, find out if the bank that’s handling your lease will allow you to do so.
Your Last Option Is Surrendering The Leased Car Voluntarily
This is your absolute last resort to end your car lease before it is over. This should only ever be done if you absolutely cannot afford to make the payments or any of the other options above. If you have to do this, there is an optimal process to follow.
First, check if you purchased something called Walkaway Protection, Job Loss Protection, or any other kind of finance protection plan. They give special protection for this exact type of situation, where due to sudden changes in your life you are unable to make your payments. For example, you might have had a traumatic and long-term illness or injury or a sudden job loss where your ability to make future payments has been rendered impossible. These types of insurance allow you to return the vehicle without any financial penalties or damage to your credit score.
If you do not have any protection plan like that, you should first call the leasing company and tell them that you cannot make future payments and want to surrender the vehicle to them. Taking it to them will help you avoid other fines if they have to come take it from you, and if they do come after you for the rest of the lease money you might have less to pay.
This has the biggest cost in terms of payments and penalties, and in terms of how much your credit score is affected. It should only be your absolute last resort if all other options are impossible.
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Ask Leasing Company For Help
If you’re in financial trouble, but you feel that you can get back on your feet if given a few months, before you terminate your lease early it’s worth contacting the leasing company to see if they will offer payment relief for a few months.
In some cases, they will agree to lower your monthly payment or even temporarily suspend it. You will of course have to make up the difference later on, but this is a great opportunity to get back on your feet without incurring extra penalties.
Usually, the only way they will agree to something like this is if your only other option is to default on the lease, in which case your leasing company will incur extra costs.
Ways To Get Out Of A Car Lease
Ending a car lease early might seem difficult or expensive, but there are ways to end a lease to choose from that might be better for your situation. Each of them have varying degrees of time, work and money you will need to provide to make it work, as well as potential financial implications for you down the road. Make sure you consider your options carefully.
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Cons Of Buying A Leased Car
- If the buyout amount is higher than the market value, you may be overpaying for the car.
- Financing a lease buyout may come with higher interest rates.
- Excessive wear, tear, and mileage may reduce the value of the vehicle.
- You may end up paying more for the car than you would have if you bought it originally.
Option : Transfer Your Lease To A New Lessee
Lease transfers allow you to legally transfer your current lease, and its remaining payments, to a new lessee who has a qualifying credit score.
There are lease takeover websites that allow you to post your leased vehicle along with the contract terms to help find an interested buyer. Your leasing company will run a credit check to approve the replacement lessee, charge you a transfer fee, and release you from your monthly payment obligation.
Some leasing companies will still hold the original lessee at fault if the new lessee defaults on payments. If you choose to go this route, finding a responsible family member or friend to take over lease payments can be safer than a stranger you find on a lease trader website.
Youre still likely to pay a transfer fee, but it should be considerably less than early termination costs. Lease transfers are not legal in every state or even offered by every leasing company, so double check that this option is available to you.
Relatively cheaper than an early lease termination.
Transfer fees. You still will have to pay out of pocket to end the lease in your name.
Convenience. Like an early lease termination, the process is fairly simple and much of the paperwork falls on the leasing company to handle.
You could remain liable. If the new lessee defaults, you could be on the hook to continue making payments.
Our Advice: Make sure you ask your leasing company the right questions:
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A Lease Car With Equity
The stars aligned for one of our Edmunds co-workers and she was able to exit a lease early and even realize some cash. Here’s how she did it:
Kathleen was about two years into a three-year lease of a 2015 Mazda CX-5. Her crossover SUV was in great shape and had low miles. But before her lease was up, she got the bug to get something new: a 2018 Mazda CX-5, which has features her 2015 didn’t, primarily adaptive LED headlights and rear cross-traffic alerts.
Because Kathleen’s leased 2015 CX-5 was low on miles, and crossover SUVs are hot right now, she suspected she might have some equity in the vehicle. She appraised it on Edmunds and compared the appraised value to her residual. Her suspicion was correct: Her residual, or buyout amount, was less than the appraised actual cash value of her car. In other words, Kathleen’s 2015 CX-5 had equity.
Kathleen traded in her 2015 CX-5 for the new 2018 and used the equity as a down payment. That allowed her to drive off in her new car with a low payment and no money out of her pocket. It’s no secret that staying within the same brand often makes trading up easier. In Kathleen’s case, the brand wouldn’t have mattered. Her equity could have been applied to any other carmaker.
To recap, Kathleen was able to get out of her lease early because all the stars aligned: She had a desirable vehicle in a segment that is hot. She also had low miles, which boosted her car’s value. Finally, the residual amount was low.