The costs that car leasing companies charge to get out of a car lease early can be dissuasive, but there are ways to get around them and still turn your vehicle in before the lease contract ends.
We’ve come up with six ways to get out of a lease agreement before your contract expires and you have to turn the car in any way. All require doing a little math to ensure that the extra costs of using each method cost less than what you’ll be charged for early lease termination.
Getting out of a car lease isn’t easy
If you’re leasing a car, you have plenty of company. About one in four vehicles in the United States were leased in 2021, which is lower than the 34% lease rate in the third quarter of 2017.
Getting out of a lease isn’t easy. The worst option is returning the vehicle and paying penalty fees, such as $200 to $500 for an early termination fee. The payoff amount will likely be higher than the car’s resale value, leaving you essentially paying for any remaining depreciation.
We’ll go over this first option, along with five other ways to end a car lease early. We’ll include the costs of each and explain why people want to end leases and when just sticking with the lease until the end can be the best choice.
Why lease a car anyway?
The average car depreciation rate for a new car is 49% after five years, according to a 2020 study by an automotive research firm. Depreciation is the largest average annual cost of vehicle ownership.
When leasing a car, most of the depreciation cost is taken on by the leaser, not the lessee. So instead of paying that cost yourself, the leasing company takes it on as a part of doing business.
However, you do pay for the value the car loses during your lease. This may be better than owning a car, where the entire depreciation value belongs entirely to you.
Maintenance costs are also often paid for by the leasing company to ensure the car is in good condition when it’s sold when the lease ends.
Another advantage is a lessee can get a new car every few years. The latest technology, a new engine that’s unlikely to break down, and even a new car smell can be yours every three years or so by leasing.
Perhaps the best reason to lease is that it can offer lower monthly payments than financing a car you’re buying. With a lease, you’re only borrowing enough money to pay for the value the car loses during your lease.
Less money will also be due at signing, as a down payment, than when buying a car. When financing a purchase, car dealers often require a 20% down payment to get the best rate on auto loans. A lease may only need a few thousand dollars down.
Why drivers may want to end a lease
Wanting to end a lease is a personal choice, but some common reasons often arise. A big reason may be that the lease is no longer affordable for you. If you lost your job and don’t need a car to get to work for a while, or at least don’t want to drive an expensive car anymore, then trying to terminate a lease early makes financial sense.
Or maybe the car doesn’t fit your needs anymore. Leasing a gas-guzzling SUV can seem like a waste of money, especially if you’re using it to drive around town running errands. A smaller car may make more sense.
Whatever your reasons, make it clear to the leasing company that you no longer want the car and are serious about turning it in early. They may try to change your mind or get you to trade it in on another vehicle. Those options are worth exploring, but don’t let a salesperson talk you out of ending a lease if it makes financial sense for you to do it.
Depreciation and residual value explained
Before we tackle the best ways for a leaseholder to get out of a car lease, we want to briefly explain two terms that affect the cost of a lease that you’ll either pay during the contract or when trying to reach a lease termination early.
Leasing a car that costs $50,000 doesn’t mean you have to borrow $50,000, as you would when buying it. Instead, you’re paying the depreciation cost over the time of the lease, such as for three years. Depreciation is the car’s decrease in value from age and use.
If a car is projected to lose $20,000 in value over three years, then that’s how much you’ll pay over three years to lease it approximately. Try to end a lease early and thus not have any more monthly lease payments, and the leasing company will want you to pay the balance due on the depreciation.
Residual value is a car’s value at the end of the lease and is set by companies in the auto industry. The residual value is set when you sign a lease.
If the $50,000 car in the above example is determined at the start of a lease to have a residual value of $30,000, then the car’s depreciation is $20,000. The amount of depreciation is the difference between the car’s price and its residual value.
If the car loses value faster than expected and is worth $25,000 at the end of the lease, you don’t have to pay the $5,000 difference because residual value is locked in when your lease begins. If the residual value rises, such as when a car is in high demand, then you may be able to keep the difference.
6 ways to get out of a car lease early
One of the main advantages of a lease is that you can just walk away from it when your lease is up.
The average monthly cost to lease a vehicle in 2020 was $460. You no longer have to make a monthly payment at the end of a lease, which can be as short as three years. Depending on your down payment and other factors, a car purchase could take up to three more years of payments.
You never own a leased car so that you can turn it in without more obligations. However, turning it in early can mean having to pay penalties and getting the lowest amount you could for it. Here’s an explanation of that option and five others:
1. Return it and pay penalties
The leasing company may allow an early lease termination, which will release you from making the remaining payments on the leased vehicle.
But to do this, you’ll have to turn the car in and pay the balance due and other costs such as vehicle disposal fees, transfer fees, and taxes. The fees for early termination will be listed in your lease agreement.
The early termination fee is normally the difference between the remaining balance owed on the lease and credit for the car's current value.
Getting this total figure shouldn’t require you having to do any math. Just call your leasing company and ask what the early termination amount is. If you’ve missed any past payments or have parking tickets, those fees and any late fees will be added.
Ending the lease early will usually be more expensive than ending the contract early. Because cars typically depreciate more upfront, early lease termination may be more expensive than keeping the car for the full lease term.
2. Buy out your lease
Buying out your lease early and buying the car outright sounds like an odd way to get out of a lease, but it can make financial sense.
The leasing company may still charge you fees for leaving the lease early, but they can be more than covered when you own the car yourself and can sell it for a profit. Ask the leasing company what the payoff or lease buyout amount is. Remember that the leasing company owns the car, not the dealership, so ask the leasing company how to get out of the deal.
One way to check if a leased car is worth enough money to buy is to check its market value. If people are willing to accept the type of car you have for an amount higher than the residual value on the lease agreement, you may be able to sell it for a profit.
3. Trade it in
A related option is to trade your leased car in early to buy or lease another vehicle. This isn’t a leased buyout and could make your monthly payments much higher than they already are.
The amount you owe on the car being returned is rolled over into the amount financed for a new car purchase or to the cost of a new lease. A big downside is you may owe more than the new car is worth, putting you upside down on a loan with negative equity.
As with the first option, waiting until your lease ends may be a better choice than transferring the amount owed to a new car with higher monthly payments.
4. Lease transfer
Transferring your lease to a new lessee may be the easiest way to get out of a car lease early. You can find someone who wants the car and transfer the lease to them, or hire a third-party service such as Swapalease or LeaseTrader to do it for you. We’ll go over how those companies work soon.
Also called lease swapping or lease trading, a leaseholder transfers the lease to another person who takes overpayments. In most cases, you’re still technically on the contract and are liable if the other person doesn’t make payments.
You’ll likely have to pay a transfer fee of $50 to $500 and possibly other costs.
To attract another lessee, you may have to help make the monthly payments affordable by offering some money, maybe up to $5,000, to the new lessee.
5. Ask for financial help
With the coronavirus causing unemployment problems for a year or more, some lenders and finance companies are offering payment relief for a few months so people can get back on their feet.
It can’t hurt to ask your leasing company to lower or suspend your lease payments for a few months if you’ve lost your job. You’ll have to repay the amount skipped later, but it could give you enough time to find a job so you can afford to keep the car for the entire lease instead of turning it in early.
Defaulting on payments should be your last choice for ending a lease early. You can offer it up as your next choice if payments aren’t suspended for a few months because the leasing company will incur extra costs in default, but it might not be enough to sway them.
Not making payments will hurt your credit score and you’ll likely cause you to be sued.
Two of the biggest companies that help leaseholders transfer their lease to a new lessee are Swapalease and LeaseTrader. Here are short reviews of each:
Swapalease connects people who want to get out of their lease early with people looking to take over a lease.
Lease owners must register an account on the website and pay a $200 listing fee. Buyers pay a fee from $35 to $80, and possibly other costs such as the lease transfer fee.
An inventory of cars can be browsed based on the car model, style, monthly payments, state, and other specifications. The website is easy to use and helps buyers find a short-term lease that should be cheaper than taking out a lease on their own from a leasing company.
Swapalease doesn’t handle the lease transfer. It connects the two parties, but the leasing company completes the transfer itself under its terms.
LeaseTrader is another big name in the lease swapping area and has been in business since 1998.
The website has a lot of high-end car leases for sale, including Rolls-Royce and Porsche. Filters make searching for less expensive cars easy, so you should be able to find just about any model of the car you want.
The site has an extensive FAQ section, though many questions about the cost of transferring a lease are answered by suggesting buyers contact the leasing company for details. Buyers must pay $35 to $60 to LeaseTrader to join.
Like many financial decisions, ending a car lease early should include a cost comparison. In this case, it’s the costs of continuing to pay for the rest of the lease and keeping the car vs. the costs of terminating the lease early. With a car lease, it’s often cheaper to keep the car and turn it in at the end of the lease.
But your life circumstances may change enough to make ending a lease contract early financially beneficial. If you’re moving to a city where you no longer need a car and can rely on public transportation, then the extra costs of ending a lease early can be worthwhile.
All of the costs of ending a lease early should be disclosed in your lease contract. Here are two of the main expenses to expect before giving up your leased car:
Early termination charge
This is a fee the leasing company will collect. It’s normally the difference between the remaining balance owed (lease payoff amount) and the credit you’ll get for the car's current value (realized value of the vehicle).
If your lease early termination payoff is $16,000 and the amount credited for the vehicle is $14,000, the early termination charge is $2,000.
An early termination fee of $200 to $500 may also be charged for an early buyout.
If you transfer the lease to another person, a transfer fee ranging from $50 to $500 will likely be charged.
Pros and cons
- No more monthly lease payments when you end a car lease early.
- No more auto insurance costs for the leased car.
- Ending a lease early may allow you to afford a cheaper car.
- The lease termination charges can be a few thousand dollars or more and can be more expensive than sticking with the car until the lease ends.
- If you transfer it to another lessee, you may have to stay on the lease and make payments if the new owner doesn’t.
- Turning the car in near the beginning of the lease term will usually cost a lot more than ending it later in the lease term.
The bottom line
You don’t get to keep a leased car at the end of the contract, so what’s the harm in turning it in early to try to save yourself a few monthly payments? A lot, it turns out.
Unless you can find someone to transfer the lease to and take over payments, it will probably be more expensive to end a car lease early than wait until it ends.
This shouldn’t discourage you from researching the cost of turning a leased car in early. The numbers should be in your lease contract, or you can call your leasing company to give you the information.
Be sure to compare all costs and make sure that turning your car in early makes financial sense. If it doesn’t, then you may want to tough it out and wait until the lease agreement ends.