Circumstances may have changed since you leased your car. Perhaps there are more expenses, and your budget cannot afford the lease payments any longer. Many drivers find the car they leased does not measure up to their expectations. Whatever the reason may be, getting out of a car lease can be more expensive than expected, and drivers should consider their options carefully regarding their leased car before taking steps to get out of the lease.
5 Best Ways to Get Out of Your Current Lease
There are five approaches to removing yourself from a car lease. Each comes with advantages and disadvantages, as well as various penalties and expenses. Termination of your lease, transfer of your lease to another person, swapping your lease with a third party, purchasing the car to sell it, and purchasing or leasing another car. You might use a lease calculator to help determine the best option financially. We will examine each of these in a little more detail.
1. Terminate your lease
Often considered the worst option, the car is returned to the leasing company, and the driver must pay all associated penalties with terminating a contract. Drivers are liable for a termination fee, remaining depreciation. Since the car is usually sold at wholesale values, you are responsible for the difference between the retail and wholesale values. Also, all of these termination fees can add up and cost you a considerable payoff amount to get out of the lease.
2. Transfer the lease to a friend
If a friend is willing to assume your lease, this may be the least expensive option. There’s usually a fee levied by the leasing company for transferring your lease. Your name may remain on the lease contract, which means that you are liable for future payments should your friend be unable or unwilling to meet all of the payment obligations.
While it is difficult to negotiate with friends, you may need to add an incentive to sweeten the deal and complete the lease transfer. Always confirm that your friend will maintain auto insurance. Otherwise, you could be liable for the lease since you are the original leaseholder. Try to find a friend that cannot get an auto loan on their own.
3. Use swapping sites
There are lease swapping sites that connect car shoppers looking for a particular car and lease deals with someone interested in getting out of their lease. Always have the full vehicle history available. There will be a transfer fee and may require an incentive that effectively lowers the monthly lease payment for the new driver for these lease assumptions. Be careful to ensure that your name is released from the lease once the transfer is complete. Otherwise, you could be on the hook if the new person taking over the lease reneges on the monthly payments.
Tip: A website when looking for a lease exchange is Leasetrader.com
4. Buying the car to sell it later
You can always purchase the car from the leasing company. You can either buy the car yourself to drive or arrange to sell your car once the ownership has been transferred to you. The banking or leasing company and the dealer will both benefit from a lease purchase. Check your options before you break the lease.
The first step is to ask the leasing company what they will charge for you to buy out the car and what fees there may be to terminate the lease once the car has been sold to you. Also, note that the price charged by the leasing company may be higher than the depreciated value of the vehicle and / or the resale value.
There may also be transfer taxes associated when you sell the car. This simple step can help add payment history to your credit score, and it will allow you to negotiate deals when it comes to the final sale price of your vehicle. If you can afford this car buying step, it would be a good idea to consider going in this route.
5. Buy or lease a new car
Many dealers offer incentives associated with leasing another car. They may be willing to waive a combination of transfer fees, remaining payments and cancellation fees associated with the purchase of another lease on a different car. If you are in the car buying mood and tired of the car you have and would like a different one, this can be a viable option.
Note that this is a negotiation that takes into account the new car price, the condition of the current car, number of miles, months left on the original lease, and the depreciated value of the car. There may be a balance transfer from your old lease to the new one in some cases. Also, auto loans are the main source of income from dealers, basically they make money with debt.
There are several other options available. However, these are really not recommended since they could impact your credit rating and future ability to arrange to lease a vehicle as well as obtain loans or mortgages. Consumers can turn to the leasing company for help. The last resort is to walk away from the lease, not make your monthly payments and possibly have your car reclaimed by the leasing company.
Ask finance company for help
Asking a finance company for help if you are in temporary financial trouble may be helpful. If your track record is in good shape, you may be able to negotiate some form of payment relief for a few months. They may agree to forgo penalties, and you will have to make up the payments later on once your financial situation returns to normal.
This is another option to buy time before getting out or rid of the lease. Talking to the leasing company should be consider if you have a financial problem due to unexpected loss of income. Also, if you can’t afford the early termination penalties talking to the banking company could spare you a few months. Management would be able to provide help.
Default on Payment
Defaulting on your payment is probably the worst option. If you just stop making payments, the finance company may sue you for what is owed and also report nonpayment to credit rating agencies. Also, a negative report for nonpayment of the auto loan on your credit rating can make it very difficult to obtain a subsequent lease or even a future car loan or personal loan.
In addition to your bad credit rating, you could still owe thousands of dollars in fees, depreciation, and penalties. Also, taking money out of a money market, savings account, checking account, or avoiding payment on student loans, even taking money from your Roth IRA, maybe an option. Defaulting on your payment could be by far the worst option when it comes to breaking a lease.
When should you leave an auto lease?
There are financial reasons and personal reasons for many consumers deciding to leave a lease. If you are unable to meet the payment obligations of the lease, leaving the lease might be the best option. Leaving a lease early, near the end of the lease with the intention of obtaining another car, provides negotiating leverage.
The dealer will be anxious to either sell you a vehicle or lease another vehicle to you and maybe prepared to absorb some of the cost of early lease termination. Unfortunately, termination penalties is something that you can’t escape unless you negotiate a new car auto loan. Some dealers can offer to pay some of the penalties for you.
If you don’t like the vehicle that you are leasing, then breaking the lease early might be just what you need. Use car buying as leverage for negotiation with the leasing company. Also, it could be a good idea to reduce the monthly payment of your vehicle. Make sure that if you get a new auto loan that you negotiate the rates after you have a final sale price.
What is the best way without hurting your credit?
Never miss a payment on your lease, even if you have to use your credit card to make the payment. Whenever you decide to return your car early and negotiate the return based on fees, penalties, and depreciation, make sure you pay what you owe on time. Even one day late can affect your credit score.
All of the above options except for defaulting on your lease should not have any impact on your credit score. If you transfer your lease to a friend who meets all of the payment obligations, there should not be an impact. If he or she misses a monthly payment, it could reflect badly on your credit score. A swaplease or buying the car could help your credit if you can afford the dealer fees.
Does returning a leased auto affect your credit?
Returning a lease car and making all of your payments on time does not affect your credit rating. Make sure that you really understand all of the fees associated with returning your car and pay these fees on time as well. Also, after returning your car and paying all of the fees and payments, check your credit score.
Errors are sometimes made, and lenders are sometimes slow at sending updates to credit review agencies. By checking your score, you can deal with the issue immediately and not affect future leases and loans you may need. Remember, late payments and missed payments always affect your credit score negatively.
Final Car Leasing Help
There are multiple ways of getting out of a car lease. With the exception of defaulting on your loan or missing a payment, your credit score should not be affected. Never miss any monthly lease payments or even be late for one. Also, getting out of a lease is going to cost something in transfer fees, depreciation, and processing fees.
One way to avoid these fees is to negotiate with a car dealer to trade up from the current car you have. They might be willing to offer incentives to close the deal, which could save you money if they assumed the lease. Always inform the car insurance companies you deal with whenever a change is made to the leased vehicle. You can also use car buying as leverage against dealerships and car leasing companies.