Can I Get Out of My Car Lease?
There are many good reasons to lease a car. The monthly payment is lower than most car loans. Maintenance of the car is included in the lease. It gives drivers a chance to have a new car every few years without a lot of the hassle that comes from buying. It is a way to maintain a good credit score.
However, there are also reasons one may need to get out of a car lease, and this leaves lessees wondering if this is possible. After all, leases are legal contracts that are binding between the lessee and the leaseholder. When you lease a car, you are borrowing it for a specified amount of time, and don’t actually own it.
Life changes, though, and so do the needs of people leasing their vehicles. Financial problems come in all types, such as divorce from or death of a spouse. Families grow and a couple that may have enjoyed a two-seat sports car might now need a sedan with lots of cargo space. Some people need to change or cancel their leases because they are relocating to terrain that requires a different type of vehicle or no vehicle at all.
A Caution About Car Leases
Leases are contracts, and contracts are legally binding. It is important to read your car lease before you sign it to ensure you know what to do if you have to terminate the lease for any reason. However, since the lease is binding, it is also important to know what you’re getting into before you sign, and what measures the leaseholder will take if you default.
This doesn’t mean that it is impossible to get out of a car lease, but it does mean that there are a few considerations you should make before trying to do so. There are avenues available to people who need to get out of their leases, but they all come at a cost.
Two major considerations to take before trying to get out of a car lease are the effect on your credit score and the cost to your finances.
Defaulting on a lease is detrimental to your credit score. In order to lease a car, it is often required to have very good credit, and the lease itself upholds that credit. However, defaulting on a lease could drive that good credit rating down so far that leasing another car becomes impossible. Depending on how you try to get out of your lease, your credit rating could decrease significantly.
There are always fees involved with getting out of a lease, some of which may be very cost prohibitive. The monthly payment for a lease is determined by the price of the vehicle when new. As soon as the car is driven off the lot, it depreciates significantly and continues to depreciate over the course of the lease. This depreciation contributes to the costs of getting out of your lease, so it is important to be aware of your car’s value if you have to end a lease, especially if you have to pay these fees.
Another cost incurred depending on how you choose to get out of your lease is the monthly payments from the rest of the leasing period. Unless you can find a way to offset this cost, you could be paying for the entire lease anyway, except you will be responsible for paying it all at once instead of incrementally.
Ways To Get Out of Your Car Lease
It should be mentioned again that there will definitely be a cost to ending your lease, no matter how you end it. How much the process costs depends on which method you choose. However, something to think about is whether it is more cost-effective to simply remain in the lease rather than trying to get out of it. This method is perfectly valid when it comes to dealing with a car lease.
However, in the event you absolutely must limit or end your car lease, there are a few ways you can do it.
There is a myriad of companies that can assist you with finding someone to take over your lease, but before you consider this option, it is important to ensure that you can. Some states prohibit lease transfers, and some leases do, too.
It is also important to check the lease for the terms of a lease transfer, because you may still be responsible for payments in some situations. Some lease transfers require the original lessee to be a co-signer, and others specify that the original lessee must be listed on the vehicle insurance.
If you are legally allowed to transfer your lease to someone else, marketplaces such as Swap A Lease or Lease Traders can match you to a buyer who can take over your lease. Since the party taking over the lease must pass credit checks similar to the ones you had to, these sites can match you to pre-approved buyers who can take over your lease for fewer fees than you’d pay using other methods.
Once a car is leased, it ceases to be considered “new” and is now a used car. Your lease will indicate how much your car will be worth at the end of the terms of the lease (usually 2-5 years), including depreciation. Should you decide to buy the car yourself, you will be responsible for making up the difference between the amount left on your lease and the value of the car when you end the lease.
In some situations, this can be a desirable outcome, especially if you’ve had your lease for a while. The longer you have leased the car, the more depreciation has affected its value, which means the lease company might end up owing you a rebate if the vehicle has decreased enough.
However, if the car has not depreciated enough, it could cost a lot to buy the car from the leaseholder. One strategy to overcome this is to buy the car and sell it immediately, but this can be difficult because the leaseholder will require payment in full before releasing the title, and not all buyers will want to wait.
Buy or Lease a New Car
Sometimes, trading in your lease for a different payment plan can be the answer to getting out of an undesirable lease. It is possible to lease a new car or just buy a car to end a lease, especially if you visit the same dealer who set up the original lease. The process has a lot in common with an early buyout.
Keep in mind, however, that the dealer is often not the leaseholder, who is the party most important to deal with when it comes to buying or leasing something else. The dealer is just as bound by the leaseholder’s terms as you are, and this will be factored into the price of a new vehicle.
Also similar to an early buyout is the cost of the lease against the depreciation. Whatever is left on the old lease may be applied to payments on the new one or the cost of a new car, driving up the price. Using this method to get out of a lease is most viable if the car has depreciated sufficiently to offset the cost, or if your needs have changed so significantly that you cannot proceed without a different vehicle.
Ask for Help
Leasing companies exist to make a profit. They can’t make much of a bottom line if they have to repossess vehicles. So they want to give consumers every opportunity to pay them. If you are having financial difficulties and cannot pay your lease, contact your leasing company and see what options they have for you.
Many of them will offer assistance in the form of reduced or deferred payments. While this is something they can do for anyone, sometimes they have special programs for people in specific circumstances such as natural disasters, the death of a spouse, or Covid-19.
No matter what your situation, any assistance you receive from the leasing company will still only defer your payments. Unless otherwise stated, the leaseholder will probably not cancel the payments altogether. However, it is much better if the leaseholder hears from you if you are having trouble paying because they can help you avoid default and preventable reductions to your credit score.
Military Families Take Note
There are special parameters for military families since the armed forces are an occupation that moves around frequently at the behest of the federal government. Furthermore, military personnel could be deployed overseas or have their stations permanently changed to another area or country. This could bring hardship to families that remain in the United States as well as to our military veterans.
Therefore it is important that active military personnel are aware of the Servicemembers Civil Relief Act (SCRA), which protects the rights of active duty soldiers from conflicts between their service and their finances. It includes rental agreements, interest rates, and other contracts, and includes automobile leases in its parameters. If you believe that your rights under the SCRA are being violated, it is important to seek legal assistance before your credit is adversely affected.
Return the Vehicle
If there are no other options, the last resort is to surrender the car to the leaseholder. This option counts as a repossession, so it leaves a very deep impression on your credit report. In addition, while it may provide immediate relief, you are still responsible for the balance of the lease and any fees associated with defaulting on it.
With that in mind, dire times may call for desperate measures. If your choices are to surrender the vehicle to the leaseholder or default on the lease altogether, it is better to surrender the car yourself. This mitigates some of the damage to your finances and your credit and gives you further opportunities to work with the leaseholder going forward. There may also be legal fees if the leaseholder has to come to you for the car.
Think Before You Lease
While it’s hard to get out of a lease, it is not impossible. It can be costly, especially if you haven’t had the least very long, but with time, information, and preparation, getting out of a car lease is achievable. However, before you even lease a vehicle, you should be familiar with the terms of your lease, especially since life is unpredictable and you may find yourself needing to get out of it.