How to Get Out of a Car Lease

If you're unable to keep up with your lease payments or want to own instead of lease, there may be ways to get out of your lease early. Find out here.

WRITTEN BY
Caitlin Wood
Updated November 27, 2020

Leasing a car has its perks, including having a new car every couple of years or so. You’ll never have to deal with an ageing vehicle, and you don’t need to get approval for a car loan. Plus, there’s often no huge lump sum payment required upfront like there is with financing. 

But there may be times when you want to break your lease agreement early. The question is, how exactly do you go about doing so? And will you be charged a penalty for getting out of your lease agreement early?

We’ll answer these questions and provide you with suggestions on how to go about getting out of your car lease before it expires. 

Why Would You Need to Get Out of a Car Lease? 

There are several reasons why you may want to back out of your auto lease early, such as the following: 

  • You can’t afford your payments. Perhaps you lost your job or had your hours cut and can no longer afford the lease payments. 
  • You want a different car. Maybe the car you’re currently leasing no longer fits your needs. 
  • You’re moving. If you’re moving to a totally different region, you may want to get rid of your car and pick something up in your new location. Or perhaps you won’t need a car in your new locale. 
  • You’re trying to be more environmentally-friendly. Driving a car releases some emissions into the atmosphere. If you’re trying to reduce your carbon footprint, then one less car on the road could help. 

Beware of Early Termination Fees

Before ending your lease, it’s important that you know the costs. There could be early termination fees to pay, which could sway your decision to end your contract early or not. 

Since auto manufacturers make money on a lease if all your payments are made, they usually include some type of penalty to entice you to stick with the agreement for the duration of the term.

Penalties for ending a car lease early may include any of the following:

  • An early termination penalty fee
  • Costs to prepare the car to sell
  • Vehicle storage 
  • Taxes associated with leasing (if applicable)
  • Negative equity between the car’s value and the lease amount 
  • Remaining payments on the lease

Find out which of the above penalties apply to your situation before you consider ending your lease early.

Ways to Get Out of a Car Lease

There are a few different strategies you can use to get out of your lease early:

Transfer the Lease to Someone Else

If allowed in your lease agreement, you may want to consider transferring your lease to another individual, if you can find an interested party. This way, the new lessee will take over the remainder of the payments so you can get out of the lease without any further payment requirements or damage to your credit. 

The leasing company will run a credit check on the new lessee, and if approved, the lessee will assume all the obligations of the remaining lease. 

Consider a Buyout Option

You have the option to buy the vehicle outright, then sell it after to get out of the lease early. There are fees involved with this option, so be sure to crunch the numbers first to make sure it makes financial sense. 

If the current value of your car is higher than its “residual value” — which is the anticipated value determined by the leasing company — a lease buyout may be a great option for you. But, if the current value of the car is lower, you may want to look at other options. 

For instance, let’s say the buyout is $25,000, and the current value of the vehicle is $28,000. In this case, you would be able to purchase the vehicle from the leasing company at $25,000 and then sell it for a profit of $3,000. 

Just be sure to factor in the costs associated with this practice. Further, you’ll need to make sure you get the buyout amount in writing from the leasing company and verify the market value of the car on resale. 

Roll Over The Lease Into a New Car Finance

If you’re looking to buy another car, you may be able to roll over the amount still owed on the lease into a new finance arrangement. This tactic won’t get rid of the entire early termination fee, but it can reduce it. And if the new car you’re buying is from the same dealership that you leased your car from, they may reduce your penalties or even waive them altogether. 

Just keep in mind that this could result in higher monthly payments. You could end up in negative equity if what you owe is more than what your new car is worth. Also, car dealerships can often hide some exit fees from the lease somewhere in the terms of the new car purchase. If you’re considering a rollover, find a car with lease payments that you can comfortably afford.

Return The Car and Pay The Early Termination Fee

The easiest way to get out of a lease is to simply return the vehicle to the dealer. The car dealer will take care of everything for you. Most lease agreements contain a provision that details penalty fees charged for early termination of the contract. 

You can always just back out of the lease early and pay the early termination penalty fee. In addition to this fee, you’ll need to surrender the vehicle, pay any balance still outstanding, and cover any other costs that come with ending the contract early. 

However, in exchange for the simplicity of this strategy, you may also be paying out quite a bit to get out of your lease obligations. 

Early termination fees usually work out to be the difference between the balance remaining on your lease and the credit for the market value of the vehicle. There may also be other fees, such as transfer fees, vehicle disposal fees, and taxes.

The leasing company would take the car back and sell it wholesale. This would help the lease company recoup the minimum value of the car, after which you would have to pay the difference, which could be a lot. 

Ask The Lease Company For Temporary Payment Relief

You could always ask the leasing company for some help to get out of your lease. If you are currently in a financial pickle but feel that you will be in a better position a few months from now, your lease company may allow payment relief for a short time as you get back on your feet. They might let you put a hold on your payments or even reduce your monthly payments temporarily. 

The difference will need to be repaid eventually, but at least you can get some financial relief for today and not be slapped with penalties for missed payments or a ding on your credit score. 

Will Getting Out of a Car Lease Impact My Credit? 

The effect that getting out of a lease agreement may have on your credit score depends on the strategy you adopt. Before you terminate your lease early, it’s important that you make timely lease payments, because missing payments can certainly hurt your credit score. 

Further, it’s imperative that you end your lease according to the terms of the agreement. For instance, if you default on your lease, the vehicle can be repossessed by the lease company, which could negatively affect your credit. 

Handing over the keys to the car without formal termination of the lease is considered a repossession, which will appear on your credit report and will harm your score. 

If there is any unpaid balance on the lease, you may find yourself in collections and potentially be sued if you don’t deal with the termination of the lease properly. 

Final Thoughts

If you’re unable to keep up with your lease payments or want to own instead of lease, there may be ways to get out of your lease early, as long as you abide by the terms of the contract. But getting out of a lease early may not always be the best idea in many cases. If you no longer like your car but you can still afford the lease payments, you might be better off sticking with the lease until it expires rather than have to deal with all the fees and hassles to terminate early.