Thinking about breaking your auto lease early? Doing so on a whim generally isn't a good idea, but there may be legitimate reasons you want to get out of your lease. Perhaps you lost your job and can't afford the lease payments, or you just had triplets and want to swap your two-seater sports car for an SUV. There are several ways to get out of a car lease, including early termination, lease transfer and trading the car in.
4 Ways to Get Out of a Car Lease
There's no ideal way to get out of a car lease, but here are some options to consider.
1. Terminate Your Lease Early
Terminating your lease early can be expensive. You'll usually pay an early termination charge—typically the difference between the outstanding balance on your lease and the car's residual value. If your lease payoff is $18,000 and the vehicle's residual value is $15,000, for instance, you'd owe $3,000.
Your lease contract explains whether early termination is allowed, how early termination charges are determined and what is included in the amount. For example, in addition to taxes and fees, you may need to bring late payments current and pay late fees. One exception: Under the Servicemembers Civil Relief Act (SCRA), active-duty service members can terminate a car lease early without early termination charges or fees in some situations.
| Pros | Cons |
|---|---|
| You're no longer responsible for monthly payments | Early termination charges can be substantial |
| You can avoid excess mileage fees | May include additional fees, payments and taxes |
| Not all leases allow early termination |
2. Trade In Your Car for a New One
Auto leases typically include an option to buy the car at the end of the lease and list a buyout price for doing so. In some cases, a vehicle's trade-in value may be higher than the buyout price. If so, you may be able to trade in the vehicle and put its value toward the lease or purchase of a new vehicle from the leasing company or dealership.
The lessor may also let you trade in your leased car for a new lease or auto loan even if the car is worth less than the buyout cost. In this case, the amount you owe towards your original lease gets rolled into the cost of the new lease or loan. You'll have higher monthly payments because you're essentially financing two vehicles at once.
Leasing companies generally prefer lessees with good to excellent credit. If your credit score has suffered since you got the original auto lease, you might find it harder to qualify for a new lease or might have to pay more.
| Pros | Cons |
|---|---|
| You get the car you want | May not be an option if you have poor credit |
| Lease equity could provide a credit toward new lease | Monthly costs can be higher if money owed is rolled into new lease payments |
3. Transfer the Lease to Someone Else
Some leasing companies or dealerships let you transfer your auto lease to another person. This is sometimes called lease swapping or lease trading. Check your lease terms or contact the leasing company to see if this is an option and what the requirements are. For instance, your payments typically need to be current, and you may need a certain number of months remaining on your lease. There may also be transfer fees.
If you don't know anyone willing to take over your lease, you can use websites such as LeaseTrader and Swapalease.com to find someone. Your leasing company or dealership will check the person's credit and verify they're able to make the lease payments. Once the new lessee is approved, they're responsible for the monthly payments and other terms of your lease contract. However, some leasing companies will hold you responsible if the new lessee defaults on payments.
| Pros | Cons |
|---|---|
| May be less expensive than early termination | New lessee must meet lessor's criteria |
| New lessee takes over payments, maintenance and other expenses | Not all leasing companies allow lease transfers |
| You may be held responsible if new lessee defaults |
4. Buy the Vehicle and Sell It
If your lease allows you to buy the vehicle when the lease is over, you may be able to purchase the vehicle early, sell it and use the proceeds to help cover the cost of breaking your lease. Contact your leasing company to see if an early lease buyout is an option and how much it costs. For example, you may need to make all the remaining lease payments, pay the difference between that amount and the buyout price, and pay an early termination fee.
To see if your vehicle is worth more than the buyout price, you can plug its make, model, year and mileage into tools on sites such as Edmunds, J.D. Power and Kelley Blue Book, or use the vehicle identification number (VIN). Unless you can pay cash, you'll need to finance the buyout. Auto lease buyout loans are available from banks, credit unions, online lenders and leasing companies. Keep in mind that these used car loans typically charge higher interest rates than new car loans, which could eat into your profits from the sale.
Selling a vehicle to a private party could net more money than trading it in. However, getting a loan to buy the car and then finding a buyer, negotiating a good price and selling the vehicle can be time-consuming.
| Pros | Cons |
|---|---|
| You could make a profit | Profits may be taxable |
| Vehicle could sell to a private party for more than its trade-in value | Selling a car can be a lot of work |
| Cost of financing the buyout could wipe out your profits |
What to Know Before Getting Out of a Car Lease
No matter what option you choose, getting out of a car lease is going to cost you. Before breaking your lease early, consider these factors.
- What are your options? Lease contracts differ; review your lease to see which alternatives your leasing company allows. For example, some lessors won't allow lease transfers; others prohibit selling a leased car to third-party dealers.
- How much will it cost? Your lease contract should state the costs involved in various methods of breaking your lease, such as early termination fees or lease transfer fees. If you're not sure how fees are determined, ask the lessor. Make sure to get all agreements and details regarding your lease termination, transfer or buyout in writing.
- What makes the most sense financially? Compare the cost of riding out the lease to the cost of breaking the lease early. Continuing to make lease payments could cost less in the long run. Even if it's more expensive, long-term monthly payments may fit your budget better than making a big lump-sum payment to terminate your lease.
The Bottom Line
While you can get out of a car lease early, doing so tends to be costly and complicated. If you're having trouble making your lease payments, contact your leasing company immediately to ask about your options. They may be willing to set up a payment plan or allow you to temporarily defer payment if you're experiencing financial hardship.
Late or missed payments on your auto lease can negatively affect your credit score, which could make it more difficult to qualify for credit in the future. As you figure out the best steps to take regarding your auto lease, consider signing up for Experian's free credit monitoring service. Experian helps keep tabs on your credit score, alerting you to important changes so you're always informed.