Car Lease Termination

When you're leasing a car, you've entered into a contract with the leasing company to take possession of the car for a predetermined period of time. But what if you suddenly want to terminate a car lease early? Or the car's lease is about to terminate, and you're left wondering about your next steps.

Planning for a Car Lease

If you already have a lease on a car, then you've probably gone through a lot of planning. You knew what kind of car you wanted to lease, how much you were willing to pay, and how long you wanted to lease the car. But now you might find yourself nearing the end of a lease, or perhaps you're even considering an early termination of the lease. What options do you have when it comes to terminating a car lease? What should you consider before the lease comes to an end?

Additional Resources

Getting out of a car lease early can be costly. At times, the financial penalties can almost be equal to the remaining payments themselves. Choosing the right option can save you a lot of money. If you think you can just drop off the car and walk away, then you need to understand the implications of that approach. You also should be aware of the long-term affect this can have on your credit report.

Options for Ending a Lease Early

If you're thinking about ending a lease early, you need to proceed with caution. Unless you do it correctly, you can make a very costly mistake in terms of money and future creditworthiness. Essentially, you have five options when it comes to ending a car lease before the expiration date:

Return your vehicle to the dealership
Lease another car
Have the car repossessed
Buy out the lease, or do a lease transfer / lease swap.

Each of these options is discussed in more detail in the paragraphs below.

Return a Leased Car

The easiest way to end your lease early is to return the car to the dealership before the lease expires. Keep in mind that you are obligated to continue making the remaining monthly payments, the costs of any penalties for excess wear and tear, as well as the excess mileage charges.

In short, you can return the car, but your financial obligations do not stop. You're the one responsible for making lease payments until your contract runs out. Even if the car is sitting in the dealer's parking lot.

Lease a Different Car

You can also end your lease early by leasing a different car from the dealership. If you decide on this option, make sure you understand how much equity you have in the car. What you owe on the vehicle is based on calculations involving the car's residual value, depreciation, and capitalized cost.

If you're in a negative equity position (you owe more than the car is worth), then the money owed is often rolled into the new lease. This has the opposite effect of a down payment. If that occurs, your monthly lease payment may be extremely high because you're still paying off money owed from your old car's lease plus the lease cost of your new car.

Car Repossession

You can also choose to stop making your monthly lease payments, and have the dealership repossess the car. If you do not meet your financial obligations to the dealership, then there is a very good chance a finance company will attempt to recover those payments. Here is the trade off:

In the short-term, you might be able to get away with defaulting on your remaining lease payments, and / or not paying the dealership any money still owed. Over the long haul, your credit score and / or rating may be damaged, and that might affect future borrowing of any kind. In fact, this could make leasing a car nearly impossible, or much more expensive than it was in the past.

Lease Buyout

Another option you have is to buy out the lease from the dealership or financing company. This option can sometimes work in your favor if the value of the car has unexpectedly held up better than projected by the leasing company. For example, the buy out price might be $15,000, but the car's true market price is closer to $17,000.

In reality, the above example doesn't happen very often. That's because leasing companies are very good at estimating car values well into the future. In fact, more often than not, buying out the lease is a costly decision because cars experience their greatest depreciation over the first two years of ownership. This means the actual market price might be lower than the buyout price; especially when terminating in the first two years of the agreement.

Car Lease Swaps

Sometimes leasing companies allow the lease to be transferred to another party, which is then responsible for making the remaining lease payments on the car. This is sometimes referred to as a lease swap. The person assuming the lease gains the benefit of the down payment, which you made to lower your monthly lease costs. In addition, you have the chance to walk away from the car without worrying about a negative impact to your credit rating.

About the Author - Car Lease Termination

Leasing or Buying a Car Resources on the Web