Everything that happens in your life will not always be under your control — you can suddenly lose your job, develop serious health complications, have to move far away for a job, or have a sudden death in your family. Any of these big events can have a serious impact on your finances, and give you a valid reason to want to end your car lease before it is over. If you do not know all of the options available to get out of your car lease early, we wrote this guide to help explain how to do it.
Ways to Get Out of a Car Lease
Ending a car lease early might seem difficult or expensive, but there are ways to end a lease to choose from that might be better for your situation. Each of them have varying degrees of time, work and money you will need to provide to make it work, as well as potential financial implications for you down the road. Make sure you consider your options carefully.
#1 — Consider Transferring a Car Lease
Arguably, the best option available to most people is to transfer their car lease to someone else. If you can find someone who is willing to take over your lease, it is the option that will cost you the least money and have zero financial impact to you. However, it does take some work to find someone and then go through the steps to make the transfer.
If you’re wondering why someone else would want to take over your lease, it is because they can get all the benefits of leasing the car without some of the extra costs. For example, if you made a bigger down payment to reduce the monthly payments, when someone else takes over the lease they get the lower payments without having to make the down payment. It allows people to get into a lease and usually get a better deal out of it. The downside is the lease will be for a shorter term, but that might also be what they want.
Here is a basic summary of how the lease transfer process works:
- Find someone who is willing to take over your lease for the remaining term and payments
- Get the new person approved for the necessary credit to take over the lease by you AND the leasing company
- Pay necessary lease transfer fees to the bank, dealership, and/or manufacturer
- Get the new person licensing for the vehicle
- Fill out the necessary lease transfer paperwork
Depending on the manufacturer of your vehicle, there might be some restrictions on transferring your lease — some will place liability on the original lease owner if the person taking it over fails to make payments, some do not allow you to transfer it within the first 12 months of the lease, and so on. Make sure you read your lease contract thoroughly to check for any restrictions for transferring a lease so you know it is worthwhile.
Thankfully, there are businesses and websites that make transferring a car lease much easier. Lease Busters is one of the most well-known in Ontario, but there is also LeaseExperts.ca, Boombo.ca, or CanadaAutoLeasing.com. They allow you to create a listing with your vehicle’s and lease’s information that people looking to take over a lease can browse through. It makes the job of finding someone to take over your lease very easy, and they are able to help guide you through all the financial and legal paperwork required. Some will even work with the leasing company to help handle some of the details.
In the end, the process is usually fairly straight forward:
- Pay a fee to have your vehicle listed on their website
- Speak on the phone with their analyst to answer questions about your vehicle and situation
- Fill out a form answering questions on your vehicle (year, make, model, odometer) and your lease (monthly payment with taxes, without taxes, annual km limit and penalty, etc.)
- Take photos of your vehicle and write a basic description of its features and options
- Respond and negotiate with people interested in taking over your car lease
Once you get to the negotiation phase, the person offering to take over your lease is allowed to ask for things like including winter tires, you paying all of the lease transfer fee, an additional cash down payment, and so on. It is up to you whether or not you agree to any such negotiations. However, if you have a great lease with a low interest rate and monthly payments and your vehicle is in good condition, you can also try negotiating with them. You can see if they’ll pay the lease transfer fee, or pay for the winter tires, and so on.
This puts you somewhat at the mercy of the other party’s cooperation, so the process can be as difficult or as easy as they are willing to be. However, you always have the option to cut all communication if they become too difficult about it. Once you reach an agreement with someone, the basic process for going through the lease transfer process takes over that was listed above.
The whole process through these lease takeover businesses can take as little as a week, from start to finish, depending on how quickly you can seal the deal with an interested buyer. To avoid having to pay another month’s payment, make sure you start the process at the beginning of the month. This should give you enough time to fully complete the process before the next month’s payment comes.
If you are worried about the cost of using these businesses to list your vehicle and assist in the transfer process, don’t be. Their fees are very reasonable, and considerably less than the cost of terminating the lease early. If you are in a rush to get out of your lease for whatever reason, they also help speed the process up considerably. In the end, it is relatively easy, costs the least amount of money than any other option, and gets you out of your lease clean with no impact on your credit score.
#2 — Think About Buying Out a Car Lease
At any point in time in the lease, you have the option of buying out the rest of the cost and term remaining in the lease. You would be buying it out from the lease company, and in doing so you would own the vehicle free and clear. This can be an expensive option in terms of upfront costs as you will need to have the money to be able to pay for the value of the vehicle as well as any remaining costs and fees of the lease. However, there are ways to mitigate that and in the end you can at least recoup some of the value with only a small loss, and you might break even in the end.
The first step is to call the lease company and explain that you are looking into the option of buying out the car lease and how much it would cost. If you made a large down payment at the start of the lease you will pay less to buy it out. You will also have to pay an early termination fee of around $200 to $500 plus the depreciation cost for the remaining term of the lease that is used to help determine your monthly lease payments. If you are buying it out, you do NOT have to pay any penalties for damage or exceeding the annual kilometer limit.
Next, look into taking out a loan to help afford the cost to buy the vehicle out of the lease. Find out what the loan would cost you. Then do some in-depth research into what the vehicle might be worth on the resale market in your area based on the year, make, model, trim, kilometers, and options. You can use websites like AutoTrader, CarGurus, Kijiji, and Canadian Black Book to help with this research.
Now it is time to do the math with all the information you’ve gathered. Take the costs associated with buying out the lease, then with taking out a loan to pay for the buyout, and subtract the cost of what you can sell the vehicle for. Odds are there will be a small amount remaining on your loan to buy out the vehicle, so you should calculate how long and how much it would take to pay the loan off in the end. Put all of this together to see how much the whole process will cost you in the end.
If it isn’t that much, buying out a car lease is one of the quickest ways to get out of a car lease early. However, it will likely cost you more than transferring the lease to someone else so it will likely be the best option for people who need to quickly wash their hands of the lease and the vehicle.
#3 — Another Option is Trading In a Leased Car for a New Lease
If you are not close enough to the end of your lease, it is still possible to trade in your current vehicle and lease to the dealership and pick up a new vehicle with a new lease. It is a very simple process, and arguably the quickest way to get out of your current lease. However, it can wind up being more expensive in the long term. This is usually a better option for people who aren’t necessarily in financial difficulty and who don’t want to stop having any vehicle at all. It is usually for people who simply do not like the current vehicle they are leasing and want to get a new one without paying big termination fees.
To trade in your current lease for a new one, simply go to your dealership or leasing company and ask if they will accept a trade in for a new lease. If they will allow you to trade it in they will include any costs, fees, and penalties from your original lease into your new lease. For example, if the original vehicle is worth less than what you still owe on the lease, you will have to add the difference to the new lease when calculating the payments. Similarly, any excess damage or annual kilometer penalties you have incurred on the original vehicle will also be added to the new lease.
It can be more expensive over time, but it does allow you to spread these costs over the period of your new lease rather than paying it all up front. This can get you into a dangerous game of incurring bigger costs and payments, so it is not advisable to trade in your lease more than once in a row. It is really only a viable option to do once if you really need a new vehicle. For example, say you lease a small sedan and a year or two after you are having a child and need a bigger family vehicle, you can trade in the small sedan for a bigger SUV or van as long as you can afford the new lease payments.
#4 — Learn About a Car Lease Termination
At this point, if for whatever reason you are not able to use any of the previous options listed above, you are getting into much more expensive ways to end your lease early. There are very few circumstances where it would not be better to simply ride out the rest of the lease, but if necessary you can simply terminate the lease.
This is not the same as buying out the lease, because you are not paying to purchase the car. You are just paying to end the lease, without keeping the car. This means you are paying out the remainder of the costs, fees and penalties of the lease without getting anything out of it except for getting out of the lease. In addition to the normal costs, fees and penalties you will also have to pay a very large termination fee. You might also have a penalty to your credit score if you cannot afford to make all the termination payments.
If you are in extremely unusual circumstances and this is the best option available to you, you can always talk with the leasing company and negotiate a solution. In the end you will still probably wind up paying a lot more than you’d like, but depending on the circumstances they might offer some leniency in some ways. In the end you should not try terminating your car lease early without seriously trying all of the other options first. Do whatever you can to make them work, and you will save yourself a lot of money.
#5 — Your Last Option is Surrendering the Leased Car Voluntarily
This is your absolute last resort to end your car lease before it is over. This should only ever be done if you absolutely cannot afford to make the payments or any of the other options above. If you have to do this, there is an optimal process to follow.
First, check if you purchased something called Insurance Insight, Job Loss Protection, or any other kind of finance protection plan. They give special protection for this exact type of situation, where due to sudden changes in your life you are unable to make your payments. For example, you might have had a traumatic and long-term illness or injury or a sudden job loss where your ability to make future payments has been rendered impossible. These types of insurance allow you to return the vehicle without any financial penalties or damage to your credit score.
If you do not have any protection plan like that, you should first call the leasing company and tell them that you cannot make future payments and want to surrender the vehicle to them. Taking it to them will help you avoid other fines if they have to come take it from you, and if they do come after you for the rest of the lease money you might have less to pay.
Some leasing companies have a policy where if you voluntarily surrender the vehicle, they will sell the car and reduce the money you owe by the amount for which they sell it. They might still pursue you for the remaining payment owed, but it will be substantially less than it would be otherwise. This is another reason to alert them ahead of time and offer to surrender it to them directly.
This has the biggest cost in terms of payments and penalties, and in terms of how much your credit score is affected. It should only be your absolute last resort if all other options are impossible.