How to Get out of a Car Lease Early (and How Not To)

Here’s the best way through this difficult situation.

Getting out of a car lease is hard. Period. There are several ways to exit a car lease, each with varying degrees of difficulty and different levels of risk. We’ll walk you through them so you can consider the alternatives. But there really is only one best way to get out of a car lease without losing your shirt—or any other clothing item. We’ll tell you about it here.

You may have leased a car in the first place because you didn’t want to be tied down by a long-term car loan. But getting out from under a problem car loan is as simple as selling the car and using the proceeds to pay off the loan. Sure, you might be “upside down” in that you can’t sell the car for as much as you owe on the loan, but once you ante up that added coin, that’s all there is to it. You are free.

Getting out of a car lease is much more challenging. Why? For one thing, you have no equity (meaning “ownership”) in the car you’re leasing, no matter how much you paid to initiate the lease. Another entity, typically a finance institution such as a bank, owns the car, so your ownership leverage is zero. Second, when you sign a lease, you promise to pay a particular amount each month for a set number of months—say, 36—and the bank wants the money you promised to pay. The bank doesn’t want the car, because it already owns it! If the bank gets possession of the car in, say, a lease default—the worst possible outcome, when a lease holder simply stops paying—it will have to repossess and then sell the vehicle, probably at auction, and won’t make nearly as much money as it would if you were paying every month. Oh, and in the process your credit rating will tank.

So now that we’ve told you why getting out of a lease is hard, here are several ways to do it, in ascending order of desirability—not that any of them is especially desirable. We’ll start with the assumption that you want to do the right thing ethically, that you care about your credit rating, and that you’d rather not end up riding the bus. Choose your next move carefully.

You Do Not Want to Default on the Lease

Defaulting means you can no longer make the monthly payments and you simply quit paying. Do not default on the lease. It will have absolutely disastrous results. For one thing, you are breaking a contract. Far worse, your credit rating will be destroyed for years to come, making it hard or impossible to get any future loans or credit cards—at least at reasonable interest rates. Do not do this.

Voluntarily Return the Vehicle

While better in both a financial and moral sense than simply failing to make payments, voluntarily ending the lease will cost you a giant termination fee. Also, you could be liable for the vehicle’s depreciation, and you’ll get a black mark on your credit report anyway.

Seek Relief on the Lease

If you find yourself in a momentary financial bind but you see a light at the end of that tunnel, you could ask the leasing company to cut you some slack. It just might do that if you can make the case that your predicament is temporary. But this won’t get you out of the lease; at best, it’ll buy you a little time. Meanwhile, your financial situation could actually get worse.

Sell or Trade the Leased Vehicle

How do you sell a car you don’t technically own? That seems difficult, but most leases do allow you to buy the car you are leasing at any time during the lease period. To sell the leased car, you should ask the lease company what it would cost you to buy the car at the current point. Then all you need to do is find someone willing to buy it from you for that amount. It seems straightforward enough, but unless you can pay cash for the car yourself—unlikely since you’re trying to get out of the lease—that means you need to persuade someone to give you the cash price for a car you don’t yet own, before you can buy it to sell it to them.

The most likely candidates to participate in such a complicated scheme are your family members (who love you) and car dealers (who love making money off you). Some consumers “solve” the problem of ending a lease by trading in the leased car on the purchase of another car. That way, all those expensive fees and penalties are rolled into the car loan. They haven’t gone away, of course; you are just paying them over time with interest, and possibly digging yourself a deeper financial hole than you were in already.

Find Someone to Take Over Your Lease

We have finally arrived at the odds-on best way to get out of a car lease without losing your shirt. In this plan, all parties get something they want. The person who takes over your lease gets to assume the lease at the payment you had agreed to with the finance company, so it is at least as good a deal for them as you got in the first place. The finance company gets all the payments it expects when it expects them. And you get out from under the lease. High-fives all around!

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