It’s not easy, and could be costly, but it’s possible to do so without causing your credit score to nose-dive.
One of the biggest arguments against leasing a car is that lease contracts are difficult and/or expensive to terminate. Unlike financing a new-vehicle purchase, in which you can simply sell the car and pay off the loan before the end of the term, once you enter into a lease it’s binding for the entire length of the agreement.
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This can force lessees who incur a sudden loss of job, divorce, or other income-affecting event that renders them no longer able to afford their monthly payments into default. If you simply walk away from a lease you’ll lose the car, trash your credit rating, and perhaps even be forced into bankruptcy due to what could be crippling costs and penalties.
Typically, a lessee looking to get out of the deal is responsible for the remaining lease payments, an early termination fee of at least a few hundred dollars, costs associated with preparing the vehicle for resale, and a charge for negative equity between what’s owed and the current value of the car or truck. Fortunately, if you're in this situation you're not without options, though not all of them may be available – or amenable – to everyone; specific contract terms can vary from one leasing company to another, and are subject to state regulations.
Here’s what to do to avoid financial calamity if you can no longer afford the payments, or otherwise want to get out of a car lease:
1. Work Things Out
Perhaps the easiest solution if you’re short on funds, is to simply fess up with the leasing company and see if they’re willing to work out a deal that will enable you to get through a rough patch and still keep the car. They may be willing to reduce or suspend your monthly payments for a set period to avoid having to deal with the hassle of a default, though be aware these reductions will be tacked onto the existing contract, and with interest.
2. Sell The Car
Depending on the provisions of the leasing agreement, you may be able to sell the vehicle to a private party or a car dealer and use the proceeds to pay off the contract in what’s called an early buyout. However, you’ll still have to pay a termination fee and the aforementioned depreciation costs, if applicable.
3. Trade In The Vehicle And Buy Or Lease Another
If your finances are not at fault – perhaps your vehicular needs have changed or you simply want a different model – you can usually trade-in the car and either lease or purchase another one. Any charges incurred will be wrapped into your new monthly payments, however. Sometimes automakers will offer incentives for turning in a vehicle a few months early that allow their customers (and sometimes those trading-in models from competing automakers) to lease another car or truck without facing penalties.
4. Purchase The Car
Especially if you’re deep into the lease term and find you’ll be exceeding the contract’s mileage limit by a serious amount and will be facing steep over-charges (which can be as much as 30 cents per mile – that's $3,000 for going every 10,000 miles over the limit), or will be subject to stiff wear-and-tear fees at the end of the term, you might want to exercise your right to buy the car early. The termination costs you’ll incur could well be far less than the mileage or excess wear fees you’ll pay later. You can then either keep the vehicle, sell it to a private party, or trade it in on a new model.
5. Transfer The Lease To Someone Else
While sub-leasing a car to another person, like one might sub-lease an apartment, isn’t allowed, a similar solution is to transfer the lease to someone else. Firms like Swapalease.com and LeaseTrader.com have established online marketplaces in recent years through which consumers can transfer their leases to other parties seeking short-term vehicle leases as a kind of extended rental.
Both services charge a nominal up-front fee for listing a vehicle, with another charge being assessed once an interested party is found and the transfer is initiated. However, if your lease payment is too high (usually because you made a low down-payment or perhaps none at all), you may have to offer a financial incentive to facilitate a transfer; this can range from a few hundred to several thousand dollars, depending on the situation. You may also be assessed a transfer fee of a few hundred dollars from the leasing company, and be held liable for any subsequent fees required by your state.
After the appropriate paperwork clears (which could take anywhere from a couple of days to a few weeks, depending on the leasing company), the original lessee simply hands over the keys and walks away from his or her lease. However, all lease transfers are subject to the approval and terms set forth by the leasing company, with some automakers being more agreeable to lease transfers than others. And though such services check all incoming transferees’ credit up front, there can still be an element of risk involved, in that a few leasing companies will hold the original lessee liable if the person who subsequently assumed the contract defaults.