When times get tough, it’s natural to look for ways to tighten the purse strings. Naturally, there are a few key steps you can take before making big leaps. However, if you’ve already crafted a budget and cut your expenses, getting out of your car lease may be increasingly necessary. While there are multiple different reasons to make this decision, the most important thing is to cancel the lease responsibly. By gaining a full understanding of how your lease works and what your options are, you can make the best choice.
Key Points
- You may have several reasons for wanting to back out of your lease, such as an inability to afford payments or no longer having a need for a car.
- There may be repercussions for getting out of a car lease early, including penalty fees or a potential impact on your credit score.
- Legitimate ways to back out of your lease contract include a lease buyout, lease roll over, or transferring your car lease to someone else, among others.
Reasons You May Want To Get Out Of Your Car Lease
There are many different situations that cause someone to look into cancelling their car lease. Some are financial and others are comfort-based. In order to choose the best route, it is important to understand why you wish to cancel your lease.
Some common reasons to get out of a lease include the following:
- Financial Difficulties. If your budget changes, your lease payments may no longer fit in your budget.
- Exceeding Mileage Limits. If you’re driving more than what your mileage limits on your lease contract allow, excess mileage fees can add up quickly. In this case, you may want to get out of your lease.
- Change In Needs Or Lifestyle. A relocation to an urbane centre with public transit or growing family that requires more space in your car might require a different type of vehicle.
- Environmental Consciousness: If you’re looking to reduce your carbon footprint, you may have a change of heart when it comes to the type of car you drive. In this case, you may want to opt for a hybrid or electric vehicle instead of what you’re currently driving.
Things To Beware Of Before Trying To Get Out Of A Car Lease
When you’re looking to get out of your lease, an important consideration is the potential ramifications. Though not always apparent at first, there are certain risks associated with early termination of your lease, including the following:
Impact On Credit
By breaking your lease, you could be considered in breach of contract, which may be reported to the credit bureaus. Further, should you miss a payment, it will be detrimental to your long-term credit.
Regardless of whether you plan to end the lease down the road, defaulting on your financial obligations must be avoided. It can lead to the vehicle being repossessed, which is even more harmful to your credit score.
Early Termination Fees
While credit is one of the main factors in choosing whether to close your lease in a certain way, another risk is a monetary penalty. When lenders lease vehicles to drivers, they make most of the money on their investment through interest.
If you are ending the lease early, the lender may seek recuperation of these funds by way of a penalty. Generally, you are on the hook for paying out the balance due, judged against the current value of the vehicle.
5 Ways To Get Out Of A Car Lease
There are several approaches to responsibly exit your lease while minimizing the repercussions on your financial future. Each of these routes comes with its own advantages and disadvantages.
1. Lease Buyout
A lease buyout involves paying off the arrangement of the lease. In fact, all leases enable you to pay out the remainder owing at any time. This gives you full ownership of the vehicle. If you are unable to access that amount of money, many choose to sell the vehicle to get the majority of the funds needed.
| How It Works | One way to approach this lease exit strategy is to simply pay the amount owing in full, plus any associated charges. The other, provided your lease allows it, is to find a buyer for the vehicle. You sell the automobile, though are still responsible for paying out the lease. |
| Benefits | The key advantage of a lease buyout is efficiency. If you need to get out of your lease quickly, this may be the best route. It’s well-suited to those focused on moving forward as soon as possible. |
| Drawbacks | While a lease buyout is an efficient approach to exiting a lease, it will most likely result in an early termination charge applied to your account. This sum (usually in the low three figures) is added to the depreciated value of your automobile. Ensure that when you do your calculations this is taken into consideration. |
2. Lease Roll Over
The lease roll over method involves extending the term of your lease itself. It gives you the chance to pay off the amount over a longer time period.
| How It Works | Provided you have a lease that accommodates a rolling arrangement, you can lengthen the period. For instance, if you have a five-year lease with an evergreen clause, after the first year you can stretch it out for another five years from that point. |
| Benefits | Thanks to the added length of time, you can achieve lower monthly payments. If you’re facing a short-term financial issue, this can be a good way to keep your vehicle and save up in the immediate future. |
| Drawbacks | As with all lending arrangements, interest is a consideration. This means that you will ultimately end up paying more. |
3. Transfer Your Lease
Transferring your lease involves finding a person to take over the contract. There are companies that specialize in finding those amenable to this approach. Or, conversely, you can find a friend or family member to take over the responsibility.
| How It Works | Essentially, you find someone who wants to use the vehicle in question. Pursuant to the underwriting of your lease, you transfer the lease responsibility to that individual. They make the payments, though the lease remains in your name. |
| Benefits | If you no longer need the vehicle and can’t make payments, this is a popular approach. It frees up your finances, lets you avoid early termination penalties, and has no negative impacts on your credit score. |
| Drawbacks | While there is typically a cost associated with transferring the lease, it usually falls between two and three figures. It depends on the nature of your lease; however, in pretty much every scenario, you face a surcharge. Additionally, the lease stays under your name. So, if the new party defaults, you are still on the hook financially. |
4. Return The Car
You have the option to return the car back to the company that manages the lease. While it can result in penalty charges, these might be less than what you would pay over time. If you have undergone a serious financial issue, and no longer need a car, this may be a suitable path.
| How It Works | Quite simply, you contact the leasing company and arrange to return the vehicle. You are then responsible for paying any depreciation in addition to early termination charges. |
| Benefits | Advantages of this method include taking an upfront financial hit in order to save money down the line. If you are truly unable to make the payments and lack the time and resources for other options, returning the car may be a prudent path. |
| Drawbacks | Not only do you no longer have access to the vehicle, this method is associated with heavy penalty fees. Additionally, if you have had the lease for some time, there is likely to be significant depreciation. This will result in a higher cost associated with the return. |
5. Ask Your Car Lease Company For Help
Financial issues are not as uncommon as you may think. Especially with the state of the current economic landscape, lenders are tending towards leniency in certain situations. This path entails you reaching out directly to the lender to ask for a deferral or reduced payments on a temporary basis.
| How It Works | Depending on the lender, when you contact them, you can avoid penalties. Ultimately, you will be responsible for the full amount of the lease. However, with a helpful lender, you may be able to postpone payments or reduce your monthly amount owing. |
| Benefits | This method is helpful for those who have fallen on hard times, though will be back on their financial feet within a few months. It offers a temporary reprieve and prevents you from defaulting on your lease agreement. |
| Drawbacks | Though lender assistance can be helpful, it isn’t without drawbacks. In the long run, you will be responsible for paying the full amount. This includes the difference in the cost of reduced payments as well as repaying any deferred amounts. Should your financial struggles last longer than expected, you are still responsible for the lease. |
What Happens To My Leased Car If I Declare Bankruptcy?
If you file for bankruptcy, your leased vehicle would be considered a secured debt. You can still keep the car if you continue making lease payments, as the lease company can’t repossess it just because of bankruptcy. However, the lease company has the right to seize your vehicle if you don’t make your payments.
Learn more: What Will Happen To My Leased Car If I File For Bankruptcy?
Final Thoughts
Provided you choose the best approach to ending your lease, it can be a way to better account for your financial future. Identify your priorities and select the path that accommodates them best. Exiting a lease early, so long as you are prudent, is a goal that can be achieved with minimal repercussions.
