Breaking your car lease early: Understanding your options

If you are leasing a vehicle but unhappy with the model or the payments, breaking your lease early is an option. Maybe you’ve moved somewhere with accessible public transit, need more space, or the monthly payment is no longer affordable. That said, getting rid of your lease before the contract is up could have difficult financial consequences. The cost of terminating your lease early could be more than the cost of paying out the rest of the lease term.

Before breaking your lease, consider all your options and weigh all the pros and cons. Here are some of your options:

1. Terminate your car lease. The earlier into the lease that you choose to terminate your contract, the more it will cost you. Call your leasing company to request the cost of early termination.
2. Transfer your lease to a new lessee. Lease transfer websites allow you to list your lease contract for other qualified buyers to take over. If your leasing company allows a transfer, depending on credit approval, this is a great option if you want to get out of their lease without paying to break it.
3. Sell your leased car. Depending on car prices at the time of sale, you may still be able to turn a profit by paying that early buyout fee and selling your leased car to a dealership or private party.

Option 1: Terminate your car lease

The easiest but most expensive option for getting rid of a leased car is to end the car lease early. For example, if you’re 2 years into a 3-year lease and return the vehicle early, you would be initiating an early termination.

Most leasing companies have penalties for breaking a car lease. The federal Consumer Leasing Act requires the leasing company to disclose the conditions that would allow an early lease termination and the amount or method for determining the termination and disposition fees in your lease agreement.

How much you’ll pay is often based on the difference between your payoff amount and the estimated resale value of the vehicle at the end of the lease term. For example, if you drive off the lot with a lease payoff amount of $20,000 and the estimated value of the leased vehicle at the end of a 3-year term is $12,000, you’ll have to pay $8,000 to get out of the lease.

The earlier you are in your lease agreement, the more expensive it will be to end the lease early. That’s because the rate of depreciation is at its highest in the first year of a car’s life cycle. In fact, new cars lose up to 10% of their value within the first minute they’re driven off the lot.

Our advice: Every contract is different, so you’ll need to read through your lease contract to find out if you need to pay an early termination fee. Once you know how much an early termination will cost, you can decide if it’s worth it.

Option 2: Transfer your lease to a new lessee

Lease transfers allow you to legally transfer your current lease, and its remaining payments, to a new lessee who has a qualifying credit score.

There are lease takeover websites that allow you to post your leased vehicle along with the contract terms to help find an interested buyer. Your leasing company will run a credit check to approve the replacement lessee, charge you a transfer fee, and release you from your monthly payment obligation.

Some leasing companies will still hold the original lessee – that’s you – at fault if the new lessee defaults on payments. If you choose to go this route, finding a responsible family member or friend to take over lease payments can be safer than a stranger you find on a lease trader website.

You’re still likely to pay a transfer fee, but it should be considerably less than early termination costs. Lease transfers are not legal in every state or even offered by every leasing company, so double check that this option is available to you.

Our advice: Make sure you ask your leasing company the right questions

• What will the total cost of a lease transfer be?
• Will it include taxes?
• What are your liabilities?
• How does their new lessee approval process work?

Option 3: Sell your leased car

You could simply sell your leased car to a private party or to a dealership for cash or trade-in value. You’ll still have to pay the termination fee, but it’s possible to make a profit when you sell your car.

Your vehicle is worth more than you think, so be sure to do some research before you head to the dealership to sell or list your car online. Use the Kelley Blue Book to get an estimated resale or trade-in value.

A private party sale will be the most lucrative and the most labor-intensive option, as you’ll have to find a buyer and deal with all the paperwork of a sale. Be sure to check with your DMV to understand your sales tax obligations if you sell to a third party. Some states will offer an exception if the purchase and sale happen within a certain time frame.

Selling to a dealership won’t turn as much profit, but you benefit from the convenience of the dealership managing the paperwork. They’ll pay off the leasing company directly, deal with any sales tax, and use any equity as a down payment on a trade-in car.

Our advice: Ask your leasing company if your contract has any third-party buyout restrictions that would require their permission to sell. If your goal is to get out of an expensive car lease and into a more affordable vehicle, this option could make sense for you.

The bottom line: Crunch the numbers

Just because you signed a leasing contract doesn’t mean you can’t break the lease. In fact, the leasing company is legally obligated to spell out all your early termination options in the leasing agreement.

You need to have all the information unique to your situation to make a decision. Call your leasing company and ask about third-party buyout restrictions, the total payoff amount, and lease transfer options.