How soon you can turn in your leased vehicle can largely depend on how much cash you have on hand. Early lease termination is an option, but it typically comes at a price.
Most leases have early termination fees rolled into the lease contract, the cost of which can make it less than ideal if you want to turn in your leased vehicle ahead of schedule.
Here's what we know when it comes to getting out of a car lease before your term is over.
Early Car Lease Termination
There are ways to cancel a lease early, but it’s probably a better idea to wait as long as possible to return it. The sooner you cancel your lease, the more you may have to pay upfront to get out of the contract. Your leasing contract may also require that you make a certain amount of payments before you can opt for early termination.
Returning a leased vehicle early – especially within 12 months of signing – can be costly. You’re almost guaranteed to face early termination fees (ETFs), and/or possibly having to pay off the rest of the depreciation you agreed to pay when you signed the leasing contract. This means paying for the whole two or three years, just to get out of the lease.
When you lease, the total amount you owe to the lessor is predetermined. The cost of a lease includes:
- Capitalized cost – Negotiated selling price of the vehicle and acquisition fee.
- Depreciation – You pay for the depreciation of the car that’s expected to happen during your lease term.
- Money factor – Leasing interest rate.
- Disposition charge – Fee charged by the lessor for transporting/selling the vehicle once the lease ends.
On top of the total lease cost, ETFs could be anywhere from $200 to $500 or more, depending on the terms of your contract. And, the remaining amount you could owe varies depending on the value vehicle and how long your term is, and how soon you want to end the lease.
To cancel a lease, you may have to pay the entire outstanding balance to get out of the contract.
Ending a lease early isn’t as easy (or cheap) as getting out of an auto loan. When you take out a loan on a vehicle, it's yours. If you want to get rid of a loaned car before it's paid off, you can sell it or trade it into a dealership.
With a lease, it's more complicated. You and the leasing company signed a contract stating that you’re going to pay for a certain predetermined cost for the lease. Although leasing isn’t generally as expensive as taking out a loan for a brand-new vehicle, you’re still responsible for paying for it.
If you return your leased car early when you still have payments remaining, you’re likely to be confronted with ETFs and possibly owe the rest of the depreciation you agreed to pay.
Sometimes, the early termination fees are based on how many lease payments you have left, while other times the fees are fixed. This all depends on the language in your leasing agreement and the terms of your lease.
Even if you had a life event that made it so you can no longer pay for the leased vehicle, it’s very likely that the leasing company is still going to expect you to pay for the car – even if you’re no longer driving it.
Transferring Car Lease
If you need to get out of a lease, you may be able to transfer it to someone else. Handing a leased vehicle to someone else isn’t as simple as selling a car to another person. Transferring a lease needs both parties (you and your leasing company and someone else and their leasing company) to be involved in the transaction.
However, a lease transfer option is often the best way to get out of a car lease. With this option, you won't have to pay the lease or any penalties. There will be a transfer fee involved, but it's typically worth the money to do this if you need to get out of the lease.
Thanks to modern technology it isn't hard to find someone to take over the lease. There are many websites devoted to helping you find someone to take over your current lease. Your need to get out of a lease can be someone else's way of getting a dream car.
In a Lease swap or lease takeover, you transfer your leasing contract to someone else. If you just started your lease, this might be the way to go. This involves finding a new lessee that takes over the lease with the same conditions. The new lessee needs to qualify in terms of income and credit score. It’s estimated that only about 80% of leases can be transferred since some leasing companies don’t allow lease takeovers.
First, find out if transferring your lease is an option available in your leasing contract. Then, you need to find someone else who can successfully pay the lease. They also need to have a good enough credit score to qualify for a lease and have enough income to afford the remainder of the payments.
It takes some time and work to transfer a lease since the new lessee must also secure auto insurance, and all the paperwork must be completed and signed by all parties.
Early Car Lease Buyout
Checking your lease contract is a good place to start if you want to turn in your leased car early. See what the lessor requires from you if you need to terminate early, such as a time restraint or what penalty fees you must pay. Leasing contracts typically have a section about what goes into an early cancellation – some include a grace period of 24 hours, but this isn’t common.
In many cases, you’re able to buy your leased vehicle at any point in the lease term in an early lease buyout. The leasing company determines the buyout price based on your remaining payments and the vehicle’s estimated residual value. Buying the lease and selling it later involves lots of steps, such as finding an auto lender, signing a new contract, and then finding a buyer. But if you just started your lease and you’re in over your head within a few months of signing, it might be worth it to avoid default if you can’t keep up.
You can also pay off your lease. This option isn't always feasible depending on your situation. Suppose you are in a position to just pay off the remainder of the lease. In that case, you can simply return the car to the dealer and pay the balance as well as a penalty fee (also called an early termination fee) and the new car lease can be broken without affecting your credit score.
Defaulting on a Lease
Defaulting is something different than simply returning it and paying the termination fees. If you default on a lease, it means you’ve stopped making payments. This can lead to a major credit score drop. Payment history is the biggest factor in determining your credit score, making up 35% of your FICO credit score.
If you do default, the leasing company also has the right to repossess the car, in which case, a repossession is now on your credit reports. After a repo, most lenders who review your credit reports aren’t likely to consider you for auto financing for at least a year (including subprime lenders).
The worst thing you can do to “end” your lease early is defaulting. Talk to the leasing company before you start missing payments if you’re struggling to keep up. You may be able to qualify for a deferment or forbearance program, but you won’t know what options are available to you unless you reach out proactively before you start missing lease payments.
Car Lease Penalties to Avoid
Car lease penalties are very common, and you should be aware of the potential lease fees that are out there. Car leasing is a very popular option for many drivers for various reasons. Leasing is like renting a car for an extended period of time, but since you don't own the vehicle, it must be kept in good condition. Here are some added lease fees you may have to pay.
- Excess Mileage Charges. Typically, leases set strict mileage numbers that you must stay under. This is because the lease payments are calculated based on the residual value, or the value after the lease term is done. The mileage of a car has a large bearing on the price of the car after the lease. Because of this, there are penalties if you go over the mileage in your lease. Typically you are allowed 10,000 to 12,000 miles per year, which is right around the average miles driven. After you go over, you usually pay per mile that you are over.
- Early Termination Fees. Early termination charges are usually associated with car leases. If you want to get rid of your lease, you can, but it will be very costly. Since chances are you are then going to switch to a different car (and different manufacturer), there are heavy charges, similar to phone carriers and their large termination fees.
- Wear and Tear Charges. You'll have to pay a penalty if the car shows more than normal wear and tear. For example, any major scratches or dents will likely cause penalty charges. Any excessive damages will also cause unwanted penalties that can be quite costly.
Is Your Situation Flexible Enough for Car Leasing?
Leasing a vehicle is often a good choice for borrowers with good credit scores and more flexible income. Lessees typically lease new vehicles for a low monthly payment, but getting out of a lease isn’t as easy as selling a financed car.
To get out of a lease, you either have to complete the contract, terminate it early (which incurs many fees and costs), have someone take it over, or buy the vehicle yourself.
If you're in a bad position and you can't afford to wait to find someone to take over the lease, and can't afford to pay off the lease and termination costs, you can just return the car to the dealership. This will prevent involuntary repossession and the headache that it can cause.
It will still negatively affect your credit, and you will still be responsible for the termination fees and the remainder of the lease. The lease company will end up getting a collection agency to try to recover. If you're in a dire situation, this will at least stave off the collection process and buy you a little bit of time.
Financing typically doesn’t involve any penalties for selling or trading in a financed car before the end of the loan contract. There are more lenders willing to assist poor credit borrowers than there are leasing companies willing to accommodate tough credit situations, too.
Related Questions to Ending a Car Lease Early
Many questions can surround the subject of ending your car lease early. If you're not sure what to do check out these possible scenarios.
What are the reasons for ending your lease early?
There are many reasons a person may want to end their lease early, including they don't like the vehicle, can't afford it, or find they drive too much for the mileage restrictions of a lease. Whatever the reason, be sure to read your contract to see what kind of ETFs there are if you return your lease vehicle and walk away before your contract is up. Be aware that you'll have to pay any fees and the total amount that you owe for the lease, even if you've only driven it for a short time. You won't save any money by walking away from a lease early.
What's the earliest you can return a leased car?
The earliest you can return your leased car to get out of your contract depends on the terms of your lease. You may have a 24-hour grace period, but this is a practice that has fallen out of style. In some cases, you can return a leased vehicle within 30 days, but you will have fees to pay. Basically, getting out of a lease, no matter when you do it, is harder than getting out of a car loan.
Does breaking a car lease hurt your credit?
Breaking a car lease early won't hurt your credit in the long run if you do it right. If you default on your lease and the vehicle is repossessed, your credit will be severely damaged.
Is it a good idea to pay off a car lease early?
Paying off a car lease early doesn't get you anything like it does in a loan. With a financed vehicle, once you pay it off you own it and any equity in the vehicle is an asset to you. This isn't the case in a lease, and making your payments early won't do anything for you except pay your monthly payment early. Even if you pay off your entire loan in one lump sum, you're still expected to turn it in at lease end and make a choice about what to do next in terms of getting another vehicle or walking away.
