Early Termination Guide
Understand How to End Your Car Lease Early
People who are currently leasing a car sometimes have a need — or want — to terminate their lease early — before the normal end date of their lease contract.
The reason might be be financial problems, job loss, divorce, illness, death, or simply because they don’t want the car any longer. Some want to end their lease and refinance the vehicle with a conventional loan. Some want out because they made a bad deal.
For all these reasons, early lease termination is a fairly common occurrence. The degree to which early termination can be successful, however, depends on particulars of each situation. Because each situation is different, the solution that is best for one case might not be best for another.
It’s In your Contract
Since car lease agreements are legal contracts, lease finance companies expect the full term of these contracts to be completed as promised. However, this is the real world and finance companies have had to make provisions for customers who want to end their contracts early.
Therefore, all lease contracts have “early termination” clauses, although some may prohibit termination within the first few months or last few months. Even with these provisions, however, early lease termination can be very costly and troublesome if not done correctly.
Many people mistakenly think that early termination means simply paying a penalty and returning the vehicle to the lease company. The lease company does not see it that way nor does the lease contract say that’s the way it works. It’s more complicated — and more expensive.
What’s Early Termination, and What Isn’t?
It depends on the lease company. Some lease companies consider a termination within the last six months to be an “early return” in which you may simply make all the remaining payments. You then return your car with all the normal end-of-lease requirements applying: inspection, disposition fee, excess wear-and-tear charges, etc.
Ending your lease earlier than six months before normal lease-end will be considered as an “early termination” (different from an “early return”) in which the lease company recalculates the amount you owe, which could be considerably more than just the sum of remaining payments. Since the recalculation involves the “realized value” (wholesale auction price) of you car, normal lease-end considerations such as mileage and wear-and-tear don’t directly apply. The “realized value” may be considerably less than the amount you still owe on your lease.
Who to Deal With
In all matters related to early lease termination make sure you only deal with your lease financing company, not your dealer. Dealers have nothing to do with leases after the initial contract has been signed and will only give you bad advice on how to handle your lease termination. Remember, your leased car is owned by your lease finance company, not your dealer.
Dealer salespeople have only one objective: to get you into another car any way possible. Don’t let them tell you that they can take care of the early termination for you by allowing you to trade for another vehicle. They’ll simply add the termination costs to the price of the new car, which will make your new payments higher than ever.
There may be circumstances in which trading makes sense, as you’ll see in a few moments, but you should make that determination for yourself. Don’t let the dealer make your decisions for you.
Some lease finance companies, especially Ford Credit, may refer you back to a dealer to handle your termination. This allows the dealer to get another shot at you, make additional profit from you, and try to sell/lease you another car. Insist on dealing directly with the lease company if possible. You don’t want the dealer profiting from your lease termination.
Will your Lease Company be Interested?
From the lease company’s viewpoint, when you end your lease early, you are depriving them of a full term of income they were expecting from you, and you are asking them to incur unexpected administrative costs.
Therefore, you should expect the leasing company to be less than enthusiastic about your decision and for the process to be somewhat difficult, possibly a little frustrating, and almost certainly expensive. However, with a little preparation you can minimize the difficulty and cost.
Let’s take a look at your options for ending your lease early.
Your Early Termination Options
Your options fall into one of the following categories. You have to decide which one, if any, of the options meets your needs.
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Payment Relief
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Lease Assumption
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Sell Vehicle
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Third-Party Buyout
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Early Buyout
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Trade Vehicle
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Voluntary Return
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Involuntary Repossession
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Keep the Vehicle
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Death or Illness
Option 1: Payment Relief – Help Without Ending Your Lease
This is actually not a way to end your lease, but a way to get temporary financial relief from your payments, assuming that your problem is financial and temporary in nature. Clearly, one of your objectives is to keep your good credit rating intact.
Write a letter to your leasing company explaining the nature of your financial problem and ask them to reduce or waive your lease payments for a specific period of time. Make the requested time period as short as possible — for example, 2 to 6 months — but long enough to make sure you’ve gotten back on your feet financially. You don’t want to be going back to them later with an extension request.
If possible, get the name of a person in the company that you can call to follow up with. Call them a few days after they’ve received your letter. Be firm in your request for their attention to your problem. Explain to them that, if they don’t help you, your only option may be to default on your lease. Since they don’t want to lose revenue and don’t want the headaches of ending the lease any more than you do, they will be motivated to work with you.
If the leasing company accepts your request for payment relief, they will formally notify you, in writing, regarding the terms of the agreement. You may have to sign an agreement letter and return it to them. Since the agreement is a legal contract, make sure you agree with it and don’t stray from its terms.
What to Expect
Some leasing companies will be responsive to your requests, and others will not. Some may not seem cooperative initially but if you take an aggressive approach you’ll get what you want. Others may already have relief programs in place to handle these kinds of situations, especially in these times of financial hardships, and will need little convincing. But you have to ask. They will likely not volunteer help if you don’t request it.
Option 2: Lease Assumption
In a third-party lease assumption ( “sublease,” or “lease assignment,” or “lease transfer,” or “lease takeover”) someone else takes over the lease from you, which releases you from further payments. The other party starts making the payments, buys insurance, and maintains the vehicle just as if they were the original lessee.
Many leasing companies prefer this method to ending a lease because they don’t lose revenue. They continue to get payments, just from a different party.
Watch Out
Contrary to popular belief, you can’t just go out and find a friend or family member to simply take the car and start making payments. This very specifically violates the small print in your lease contract. Further, the leasing company would come looking for you if your friend suddenly decides to stop making payments, or if the car becomes stolen or wrecked. Technically, you would still be responsible for the car and for the terms of the lease agreement regardless of who is making the monthly payments.
Don’t even think about handling a lease takeover without involving the lease company.
Use a Lease Transfer Service to Exit your Lease
You can use the services of a company that specializes in transacting lease assumptions, or lease transfers — sometimes called lease “swapping” or “trading”.
These companies perform a very useful function by acting as middlemen — matchmakers — matching up people who need to end a lease with other people who are looking for short-term or low-cost leases on late model cars.
For a reasonable fee they will list your vehicle, work with your lease company, and take care of the details for you. It is a fairly simple process and will save you hundreds, if not thousands, of dollars. Swapalease.com and Leasetrader.com are the two best services.
Do It Yourself
The kind of lease transfer service company discussed above will save you the headaches and details of a lease assumption, but if you want to try it on your own, you can save yourself a few dollars, especially if you already know someone who wants to take over your lease.
However, handling your own lease assumption must be done in a proper way, working with the leasing company all along the way. You should never attempt to reassign a lease to someone else without the leasing company being involved. Remember, it’s their vehicle, not yours. And it violates your lease contract.
You should formally request the leasing company’s approval. Explain to them exactly what you want to do and why you need to do it. Again, this only promises to be a big headache for them, but they would rather see the payments keep coming in every month than lose them altogether.
After getting approval from the leasing company, you must find, or already have someone who is willing and capable of taking over the lease. The leasing company will not do this for you. You can place ads in your local newspaper, in one of your local “auto trader” publications, or on one of the many websites which help sell used cars. Once you’ve found someone, inform the lease company and they’ll give you instructions from there.
Who Would Want to Take Over your Lease?
Since you would probably require no down payment, your lease takeover offer might be attractive to anyone who is looking for an inexpensive way to get into a relatively new car. A normal used car purchase typically requires a 15%-20% down payment, plus sales tax, plus fees.
Your deal would be especially attractive if your payments were lower than normal (because you initially got a great deal or made a substantial down payment). If the market value of your vehicle promises to to be higher than your contract lease-end purchase price, this could also an incentive for someone to take over your lease now.
You might have to be creative in “marketing” your lease takeover deal. Think of people who might need a lease for a short time, say a year — the minimum time for a new lease is 24 months. If you only have a year left on your lease, this might be attractive to them.
Think of people who might want to “test drive” a certain vehicle make/model before they decide to buy or lease new. They could take over the remainder of your lease and have time to really evaluate the vehicle. You could make the deal more attractive by offering to make the first couple of payments for them.
Be aware that if you’re trying to end your lease because you made a bad deal and your payments are too high, the likelihood of your finding someone to take over the lease is diminished — since it’s unlikely that anyone else wants the high payments either. You may have to offer some kind of “rebate” payment, much as dealers do to help promote new-car sales. Paying a cash incentive to someone to help motivate them to assume your lease is a lot less expensive than paying full termination costs to the lease company.
How it Works
If the leasing company is interested in helping you, they will require that the other party submit to a credit check and complete a new contract. Often, they will ask that you go to the original dealer to start this procedure. Don’t expect the dealer to be very enthusiastic about it unless he feels that there might be some future business in it for him. There could also be fees to be paid to cover administrative costs associated with the reassignment. You may be able to get the other party to pick up these fees but, typically, the seller (you) pays them.
The leasing company and the party to whom the lease is being reassigned will expect the vehicle to be in good condition, with normal mileage. The new lessor isn’t likely to want to pay for your damages and extra mileage at the end of his lease. You would probably be asked to make damage repairs, or to compensate the new lessee for the cost of repairs and excessive mileage.
Getting Yourself Out Cleanly
Ask the leasing company to send you a written release once the new contract has been approved and signed by the new lessee. This relieves you from further responsibility or costs related to the lease. Be aware, however, that some lease companies insist on keeping the original lessee — you — liable, which creates a risk to you if the other party violates their contract. Be sure to ask about this.
Again, let’s emphasize that leasing companies are all different in their willingness to handle lease transfers. Some will be willing, some will be difficult, and some will simply have a policy of not doing it at all.
Option 3: Sell Your Vehicle
If you want to end your lease early, you may be able to sell your vehicle and pay off the lease with the proceeds. Although this is clearly the easiest way to end a lease, it must be approached with a lot of careful consideration. It’s not always the best way. Whether or not this approach will work for you depends on details that we’ll examine below.
Technically, before you can sell your leased vehicle, you have to have title to it, which means you must buy your vehicle from the leasing company before you can sell it to someone else.
Since you don’t actually have title to your leased vehicle to start the process, selling is basically a three-step process:
1. You find a buyer, sell the vehicle, get payment, and promise title transfer later.
2. You terminate your lease with the leasing company by purchasing the vehicle from them for the payoff (‘buyout”) amount using the funds you receive from the new buyer. Be aware that you may have to pay sales tax and fees on the purchase.
3. The leasing company then sends you the vehicle title, which you transfer to your buyer — typically after reregistering in your name first.
Sounds simple enough, but there are important considerations, explained below. Furthermore, since the laws regarding vehicle sales transactions differ from state to state, you should make yourself familiar with the laws and procedures in your state by contacting your state DMV (Department of Motor Vehicles). Your leasing company may or may not inform you of these regulations since they are probably in another state.
Know your Payoff
Selling only makes sense if you understand what you owe on your lease — known as the payoff or buyout — and how much you can expect to sell your vehicle for. Remember, in a buyout, you are paying for the vehicle as well as any lease termination charges.
If the payoff is larger than the amount of money you receive from selling your vehicle, you will have to raise the extra cash to make the full payoff to the leasing company. Unfortunately, in most leases, it is likely that this is the situation that you’ll find yourself in, which probably makes this option impracticable.
You should contact your leasing company to find out your buyout amount. Do not contact your dealer, even if the leasing company instructs you to. There have been cases where dealers padded the payoff quoted to the customer, paid off the leasing company the real amount, and kept the extra for profit. Always deal with the leasing company directly.
The Payoff Amount
Most people are unpleasantly surprised by the amount of their lease payoff. How could I still owe so much?
It’s really pretty simple to understand.
In leasing, you make little or no down payment, make relatively low monthly payments (compared to a purchase loan), and have a high estimated lease-end residual — which are all characteristics of a typical lease. Furthermore, your first year’s payments don’t keep up with the rapid depreciation that all vehicles experience in that time period.
Therefore, you will nearly always be in a high payoff situation, unless you’re very near the end of your lease. This typically means that your lease balance is more than your vehicle is actually worth — you are “upside down.”
However, it is possible that you may not be significantly upside down, or not upside down at all.
If you have a popular in-demand vehicle, or made a high down payment at the beginning of the lease, or traded a high-value vehicle when you leased, or you’re near the end of your lease — you may be in a favorable “positive equity” payoff situation. These are all factors that can make selling, or trading, your vehicle possibly a good way for you to end your lease.
Again, the most important piece of information you need in order to make your decision is the payoff (buyout) amount, which you can only get from your leasing company.
How Is your Payoff Determined?
Different leasing companies calculate lease payoffs in different ways. If you’re ending your lease within the last six months of the lease term, many lease companies consider this an “early return” and not an “early termination.” They calculate your buyout as simply the sum of your remaining payments.
Other companies consider any early end as an “early termination” and describe how the payoff is determined in their lease contract, although it’s usually described in confusing financial gobbledygook. Typically, the calculation is made up of the following components:
Early-termination fee (some leases have no such fee)
This is a fee, usually specified in your lease contract, that is charged if you end your lease early. This may be the same fee charged if you decide to purchase your vehicle at normal lease-end — a “purchase option” fee. The fee helps pay for the leasing company’s administrative costs associated with processing your termination request. The fee is typically about $350.
Remaining depreciation payments (this is calculated in various ways)
A portion of each of your monthly payments pays down the expected depreciation of the vehicle over the term of the lease. If you stick with the lease until the end, you pay off all of this depreciation. If you end your lease early, only part of the depreciation has been paid. You owe the leasing company for the remaining part when you purchase your vehicle early. But what you owe is probably more than you think because of the way it is calculated.
Residual value
In addition to the remaining depreciation payments mentioned previously, you must then add the residual value from your contract to finally arrive at the payoff amount for an early buyout.
Example
Let’s look at an example of a payoff calculation for an early lease buyout. All the figures would come from your lease contract. Let’s use some example figures:
Original Net/Adjusted Cap Cost = $28,000
Residual = $14,000
Depreciation = Net Cap Cost – Residual = $14,000
Rent/Lease Charge = $5600
Early termination fee = $350
Monthly Payment = $546 / month
Let’s say that you’re 18 months into a 36-month lease — half way — and you want to terminate now by purchasing your vehicle and selling to another party. What is the payoff to end your lease and purchase this vehicle?
A. Early-termination fee = $350
B. Remaining portion of Depreciation = $7307 (not $7000 — see note)
C. Residual = $14,000
Total payoff = A + B + C = $21,657
Note:
It would seem that, half way through this lease, you would have paid off half the depreciation, or $7000, but that is not the case when you terminate early.
The formula for calculating how much of the depreciation amount you still owe is a different, more complex financial formula than the one used when your payments were initially calculated. It’s typically called an “actuarial method.” The result is always that you owe more than you anticipated because, early in your lease, you were deemed to be paying more finance charges and less depreciation.
Without knowing exactly how the leasing company calculates your payoff, there is no way you can independently determine what your exact payoff figure is going to be. The method shown above is simply an example. The only way to get the real figure is to ask the leasing company.
Selling Price vs. Payoff Amount
Once you know the amount of your buyout payoff, you’ll want to try to sell your vehicle for at least this amount. You should check your local newspaper classified ads to determine what vehicles that are similar to yours are selling for. Actually these ad prices are “asking” prices, not selling prices, which will be somewhat lower.
Also check with Edmunds’ website (www.edmunds.com) or Kelley Blue Book (www.kbb.com) to find the retail market value — not trade-in value— for your vehicle. Edmunds provides True Market Value (TMV) prices that represents their best evaluation of current selling prices. With this information, you’ll know what your vehicle is worth.
If you’re lucky, your vehicle is worth more or about the same as your payoff. If not, you’ll have to come up the difference out of your pocket to make the full payoff to the leasing company before they will release the title to you. Of course, the real measure of what your vehicle is worth is how much you can convince someone to actually pay you for it.
Option 4: Third-Party Buyout
This option is very much like Option 3 above but, in this case, the buyer purchases your vehicle directly from the lease company without you having to purchase the vehicle first.
Obviously, this method saves time, simplifies the process, and possibly saves you from having to pay sales taxes.
The catch — like with Option 3 — is that you must find a buyer who is willing to pay your price. If your lease payoff (buyout) amount is more than your vehicle is worth, this could be difficult to impossible. If it’s not possible to find a buyer for the full buyout amount, you may have to lower your price and come up with the difference in cash to help the buyer pay off your lease.
Of course if your vehicle can sell for more than the buyout amount, you’re in good shape. You should be able to sell your vehicle with no problems. Have the buyer write one check to your lease company for the payoff amount, and another check to you for the difference.
One last thing. Some lease companies don’t like third-party buyouts and prefer the Option 3 approach. So before you start looking for a buyer, ask your lease company if they approve of third-party buyouts.
If the lease company OKs it, make sure you also ask about what procedures you must follow. In some cases, it may involve a dealer who would handle the paperwork. There could be administrative fees charged to you and/or the buyer. And the buyer may have to pay sales tax.
Option 5: Early Buyout
This option is for people who actually want to keep their vehicle but are now uncomfortable or unhappy with leasing. This might be because they see that they are exceeding their mileage limits and don’t want to be faced with large fees at the end of the lease. Or they feel that refinancing a lease buyout with a low-interest loan might save them money.
Does it Make Sense?
Will buying your leased car really save you money? Maybe, maybe not.
The key to whether this option makes sense in a given situation is comparing the cost of continuing the lease until its end to the cost of the buyout. All of the discussion in Option 3 above regarding knowing your payoff amount applies here. Get your buyout amount from your lease company.
Since your leased car is now considered a used car; a bank, loan company, or credit union will only approve you for a loan amount that is considered to be appropriate based on the market value of the car. It’s possible that your lease buyout costs will exceed this loan amount, meaning you won’t get enough money to cover your buyout.
If this is the case, you’ll have to come up with cash to make up the difference to the lease company to buy out your lease.
It’s also very possible that your loan payments, depending on the term of the loan, will exceed your current lease payments and costs, even if you’re getting a low loan interest rate.
If you think you want to buy out your lease because you’re exceeding your mileage limits, you must decide if the cost of ending the lease justifies not having to pay mileage fees at the normal end of your lease. It may be that keeping your lease and saving away money for mileage fees is the better and cheaper option — or waiting until lease-end to purchase your vehicle, which allows you to avoid mileage and damage fees.
In summary, every situation is different and there is no standard answer to the question of whether a lease buyout is worth doing. The procedure for evaluating your own situation is the following:
1. Get your lease buyout amount from your lease company.
2. Get loan quotes for the vehicle from your bank, credit union, or online sources such as Auto Credit Express.
3. Calculate the total cost of your loan, including finance charges (interest). Include the amount of any out-of-pocket cash you’ll have to add to the loan amount to buy out your lease.
4. Calculate the cost of continuing your lease payments. Add estimated mileage fees if you plan to return the vehicle, or add the lease-end purchase price if you plan to buy the vehicle.
By performing this basic analysis, you’ll get a good feeling for the right direction you should go.
Option 6: Trade Vehicle
You can end your lease early by trading your vehicle on a new lease or purchase of another vehicle. Be wary of getting advice from your dealer, however. Many unsuspecting consumers have taken an ambitious salesperson’s advice and made serious mistakes in this situation. Do your own homework first.
Trading a leased vehicle is not quite as straightforward as trading a purchased vehicle.
Trading to end your lease is almost like the buyout/sell method explained in Option 3 above. The difference is that, instead of selling to another consumer, you’re selling to a dealer at wholesale (not retail) price. Since you can make more money by selling yourself, you may want to reconsider selling before you decide to trade.
The Dealer Does It
If you decide to trade, the dealer takes care of making the payoff to the leasing company and, hopefully, giving you fair credit for the trade-in value of your vehicle. The dealer is actually buying the vehicle from the leasing company for the amount of the payoff, saving you the trouble. Although this seems like a great solution, it’s full of potential problems.
Dealers love lease trades because it gives them a chance to make additional profit. Don’t trust the dealer to give you an accurate figure for your payoff amount. Get it yourself directly from the leasing company. It’s just too easy for the dealer to “pad” the payoff amount and make a little unearned profit for himself. Also know the fair value of your trade-in (see Kelley Blue Book and NADA Guide).
Potential Problems
Don’t just assume that the dealer is paying off your lease when you trade. There have been many horror stories in which consumers “traded” their leased car only to find out later that the dealer simply returned it to the lease company. The lease company considers this to be an early return, and you’ll get a large bill from them for the amount you still owe on the lease. So, if you trade, stay in contact with your lease company to make sure they know what’s happening and that everything takes place as it should.
Trading your leased vehicle to end your lease only makes sense if you aren’t “upside down” (you don’t owe more than the car is worth), which is nearly always the case if you’re ending your lease early. If you’re upside down, the dealer will simply increase the cost of your new car by the amount you still owe on your old car (negative equity) — minus whatever amount he’s allowing you for the trade. Your payments will be much higher on the new lease or purchase. Furthermore, your negative equity may not appear as a separate item in your lease contract. The dealer simply adds it to the Gross Cap Cost in your lease contract. He could easily add a larger amount and, if you don’t ask what’s included in the Gross Cap Cost, you’ll never know. You’ll grossly overpay for your new lease.
A worst-case situation would be if the dealer adds negative equity to your new lease or purchase and doesn’t actually buy the car from your lease company. If, instead, he returns the car to the lease company, you will receive a bill for the full early termination balance. In effect, you’ll pay the negative equity twice.
Example
Let’s say your lease payoff is $12,500 and your vehicle’s trade-in (wholesale) value is only $10,000 (this is less than your payoff). Since you’re upside down, the $2,500 difference will be added to the cost of your new vehicle. But you’ll not see the $2500 anywhere in your lease contract.
Let’s look at the opposite situation: Say your trade-in value is $15,000 — $2,500 more than your payoff of $12,500. In this case, the extra $2,500 that is left after the dealer has paid off your lease reduces the cost of your new vehicle — a good move. The $2500 is the same as a down payment and lowers your monthly payments.
So trading your leased vehicle for a “less expensive” new car could easily end up costing you more in payments and total costs if you don’t do your homework. Don’t expect your dealer to point this out to you.
Instead of trading your leased car and exposing yourself to the above problems, consider having someone else take over your lease, as explained earlier in this guide.
Option 7: Voluntary Vehicle Return
Suppose you decide you don’t want or can’t afford your leased car and simply want to return it to the lease company, and walk away. There are two ways you can handle this — the right way and the wrong way.
The wrong way is to get behind in making your payments, fail to notify the lease company of your intentions to return your vehicle, and not pay the termination charges you owe, even though your lease contract clearly spells out your obligations. Even when you return the vehicle, you will be sued for the lease balance and your credit will be damaged for years to come.
Leasing is Not Like Renting
Some leasing consumers make the mistake of assuming that they can simply return their leased vehicle to the finance company any time before the lease end date, and walk away with no further obligation. Not true. There’s the matter of paying what you still owe, which could be substantial.
Payoff Amount
So what do you owe the leasing company after returning their car to them? It’s the payoff amount that we’ve already discussed for Options 3 and 4 above — with one difference.
Since you’re not buying or trading your leased vehicle in this case, the leasing company must reduce your payoff amount by giving you credit for the value of the vehicle — because you’re giving it back to them. This value is called the “realized value” in your lease contract.
What is Realized Value?
Realized value is usually defined as the amount that the leasing company could expect to get by selling your vehicle at an auto auction — wholesale price or less — not the full market price you might expect to receive if you sold the vehicle yourself.
Realized value is also not the residual value in your lease contract. In fact, it’s possible that the realized value could be much less than the residual value in your contract, meaning that you will end up owing even more than you might have expected.
If you don’t agree with the leasing company’s estimate of your vehicle’s value, you can negotiate with them. Use the information on websites such as Kelley Blue Book (www.kbb.com) to determine what your vehicle is worth considering its condition and mileage.
Often, however, realized value is determined when the leasing company actually sells your vehicle at auction. In this way, they sidestep the issue of negotiating with you. The actual sale price is the realized value — plain and simple.
Unfortunately, in many cases, the realized value may not completely cover your payoff, unless you’re already near the end of your lease when your chances are better. You’ll have to come up with the difference in cash to get out of the lease. Failure to pay can result in serious legal and financial penalties.
It’s important, therefore, to do your homework prior to making a decision about ending your lease this way. Don’t let the leasing company surprise you with the bad news after it’s too late to take another course of action.
Example
Let’s use the same example we used in Option 3 above in which you’re 18 months into a 36 month lease and your payoff is $21,657.
The leasing company determines the realized value (current wholesale auction value) of your vehicle to be only $20,000. You determine that this is a fair and accurate assessment by checking with Kelley Blue Book.
This means you’ll have to pay the difference, $1,657, to walk away from this lease.
A Better Way?
You will nearly always be better advised to sell the vehicle yourself, as described in Option 3 above, than to simply return the vehicle to the leasing company. Consider that if you could sell the vehicle in this example yourself for $21,000, you would only have to pay $657 out of your pocket. Or if you could sell for $23,000, you would actually make $1,343 profit after paying off your lease.
The disadvantage here, of course, is that you have to come up with the money to buy the car first before you can sell it, unless you work out an agreement with the buyer to use his money (check your state vehicle transfer laws to make sure you’re OK with this method) — or if the lease company allows third-party buyouts (see Option 4 above).
Option 8: Involuntary Repossession
Involuntary repossession takes place when a lessee simply stops making payments or otherwise defaults, doesn’t contact the leasing company to explain, and doesn’t return the leased vehicle. The lease company will then have your vehicle taken from you and will begin collection procedures against you.
All lease contracts specify what constitutes default. Typically it can occur if payments are missed, false information is provided on a credit application, failure to keep insurance on the leased vehicle, use of the vehicle in a crime, incarceration, bankruptcy, or death of the lessee (lease contracts aren’t canceled if the lessee dies).
Involuntary repossession is not a recommended option for ending a lease. The leasing company takes the vehicle and sues you for the payoff amount, legal fees, and vehicle repossession costs. Even after you get the situation settled, your credit rating will suffer for several years afterwards. Just don’t do it.
Option 9: Keep Vehicle
We’ve now covered all the options for ending a lease early. However, after you’ve done all your homework, you might just find that your best and cheapest option is to simply keep your vehicle, at least until you’re further along in your lease when you’ll have more equity and costs will be smaller.
Compare the cost of continuing to make lease payments versus the cost of getting out early — and not having a vehicle to drive. Many people, who feel a desperate need to end their lease, automatically assume that it will magically solve the problem that created the need. This is rarely the case. In fact, in some cases, it could actually make the problem worse.
If you think you want to end your lease because you can see that you’ll exceed your lease-end mileage limits, it’s possible that ending the lease is not the best option. Project your mileage overage, calculate your cost based on the per-mile charge in your lease contract, and compare that cost to the cost of ending your lease early. You might find that keeping your vehicle and paying the lease-end mileage charge is less expensive than the cost of ending your lease early.
Option 10: Death or Illness
The death of a lessee, or serious illness, does not end a lease or its obligations. Technically, a car lease is a financial obligation like a loan or credit card debt. In case of death, the lessee’s estate is expected and required by law to satisfy (pay off) those obligations. However, if the family of the lessee wants to keep the car and continue making payments, they should contact the lease finance company to make the necessary changes. In case of illness, many lease companies have unwritten policies that can provide relief, although they will not cancel the lease without payment.
Summary
If you think you might want to end your lease early, make sure you do your homework and look carefully at all your options before you make a decision.