When you leased the car, it sounded like a great deal. You got to own a brand-new car for far less price than you would have paid out if you bought it outright. And you thought in next two to three years, you will buy a new car with the same dealer by returning it. Great!
Fast-forward to today, your situation has changed dramatically. The same, shiny new car you moved from dealership to your driveway after signing the lease doesn’t seem to be the right fit anymore. Perhaps the small vehicle you leased can’t accommodate your growing family. Or maybe your financial situation has changed, and you are no longer in a position to pay the monthly payment. Or perhaps you have changed jobs, and your new itinerary threatens to blow your annual mileage limit.
Whatever the reason may be, now you want to get out of the lease fast. Well, there a few options, but none of them is a surefire solution that can save you from penalties.
Potential Penalties for Quitting a Car Lease Early
Car manufacturers and dealerships only make money on a lease if their clients make all their payments. Thus, to keep you in the car lease until the end of the contract period, leasing agreements usually include several penalties that apply when you try to quit the lease early. According to DMV.org, penalties for quitting a car lease early include requiring you to pay all or some of the following:
- Pay early termination fee.
- Clear remaining dues.
- Pay charges for preparing the car for sale.
- Settle up with transportation and or storage charges of the vehicle.
- Bear taxes related with leasing (if any).
- Agree to take negative equity between the current value of your vehicle and your lease amount.
Owing to these forfeits, it’s important for you to carefully study your leasing contract before you try to quit your car lease in order to see which of these penalties are the part of your agreement. It is very likely that all of them will appear in your contract in some form or fashion. But, two of them are most common:
- Pay an early lease termination fee (or)
- Clear your remaining payments on your agreement.
If your lease agreement compels you to clear your remaining payments, it will be the most costly obligation. For instance, if the lease terms is 48-months and you decide to walk away after 26-months, the contract will force you to pay the remaining 22 months payments if you are terminating agreement now. This means if the monthly payment is $300, you will have to pay $6,600 (22 months x $300) to get out of the car lease.
In the event, there isn’t any specific clause pertaining to making the remaining payments, there could be some other sort of penalty. And that penalty could be a flat amount, or it could also be described as a number of periodic payments. Likewise, early termination fee can also be based on a wage schedule. There could be three extra payments if you decide to end your lease during the first year, two payments if you quit it within the second year, and one payment if you terminate the lease within the third year. These combinations can vary widely.
Of course, these penalties can be stiff. But they are set up that way deliberately to prevent early lease termination. So, if you can’t get out of the vehicle lease, then what can you do to terminate the contract early?
Here are five easy and cheap ways to get rid of the car lease term.
1.Return the Vehicle to Dealership
Although it’s one of the simplest ways to get out of the car lease, it’s probably the most expensive options too. There are a lot of dealers who will allow you to quit your lease before the end of the term if you are willing to get into one of their pricier and newer models. And that’s not all, you also have to pay all the fees and penalties that were mentioned in your leased contract.
2.Legally Transfer Your Lease
This process requires you to find a person who is willing to take possession of your leased vehicle and fulfill the remaining terms of the repayment contract. This includes, any fees or penalties assessed at turn-in. You can either find a new lessee on your own or visit a lease-swapping website like QuitALease.com to find the right person.
QuitALease is a specialized website in lease trading. It’s much like selling your car online. You wash your car, take pictures and list your vehicle on the site to find a party who is interested in assuming your lease under the terms. There are many out there who are interested in assuming lease because they are looking for a short-term arrangement or a plan that is shorter than the ones offered by new car dealers.
Finding a new lessee is an ideal solution for those who are desperately looking to get out of their lease. Because swapping would prove a good deal than trade in or any other termination. But there is a slight catch: Some lessors do not allow you to transfer your lease. Thereby, you need to closely view your agreement to find out if that is even an option.
However, there are many lease companies that allow you to transfer your lease but the original leaseholder is required to remain on the paperwork in the event of a transfer. If that’s the case with you, then you will actually become a consigner for the new lessee. Meaning, if the new lessee defaults or incurs penalties he or she can’t or won’t pay, the leasing firm will have the right to come after you for the funds.
3.Buy It Outright and Sell The Vehicle
Car lease contracts usually contain provisions allowing clients to buy their vehicle outright during the term of the lease. This makes it another viable solution to walking out of a lease contract if the buyout of the lease is less than the resale value of the car.
For instance, if the payoff is $20,000 and the resale value of the vehicle is higher, you can buy the vehicle from the leasing firm and, then sell it in the market. Usually, there are early termination charges equal to a few hundred dollars, but that may be a small price to pay when can quit a lease early and manage to sell your car at a high price.
To do so first, you need to get the payoff amount from the leasing firm and make sure you get it in writing. Secondly, you need to gauge the current value of the car on resale. You can easily do this by visiting different websites that allow people to check their car prices and values.
Even if the sale value of the vehicle is slightly less than the buyout price, you probably won’t mind paying the amount because still, it’s an inexpensive way to opt out of the lease than returning it to the dealership.
4.Talk it Out With Your Lease Firm
In case, you are not too keen to get out of your lease entirely, but you certainly want a break from your monthly payment, then you can always discuss various options with your leasing company. If the firm is willing to work with you they will figure a way out.
One solution they can suggest is a temporary reduction (or suspension) in your payment amount and, then make it up on the back end. Obviously, it’s not an idyllic solution, but if it prevents an early termination by getting you out of the jam it could be the best decision for both parties.
5.Default on Your Car Lease
Unfortunately, this is not a solution. It’s a ‘no other way out’ method. You should only consider opting for this solution when you can no longer pay for the lease. Sure, it would get you out of the monthly payment term, but at the same time, it will create other problems too that are less immediate in nature.
When you default on the lease, your credit rating will suffer greatly because leasing is equivalent to an auto plan. Furthermore, you will possibly face a judgment or collection for the unpaid early termination penalties, as well as any collection cost and unpaid lease payments with the default.
Remember, this should be used as a last resort, and only when you fail to attain success with other methods.
Final Thoughts
It’s not so easy to quit a lease before the end of the term. The best case scenario for you is to find someone who can take over your lease payments for the rest of term or simply payoff as a part of buying a new vehicle with the same dealership Else, you will have to pay significant amount in the form of termination penalties that could be equal to more than a few months’ lease payments.