Contrary to popular belief, there is no termination fee or penalty fee, as such, to end a car lease early. However, there are costs, often significant, that are related to paying off the remaining lease balance and returning the car.

The way that most lease finance companies calculate an early lease termination “fee” is as follows:

Sum the remaining lease payments and subtract the total unpaid finance charges (see How Lease Payments Are Calculated). Then subtract the “realized” value of the vehicle, which is either its estimated or actual auction sale price.

The result is the amount that will be billed to the customer who is ending his/her lease. In this sense, it is not a simple penalty fee.

If a lease is terminated during the first half of the lease term, the cost of ending it can be surprisingly high due to the slow way in which low monthly payments pay down the balance owed. If ended within a few months of normal lease-end, the termination “fee” or “penalty” may be nothing more than the sum of the last few payments, plus the disposition fee as specified in the lease contract.