When life throws you a curveball and you need to tighten your budget, you might need to break your car lease.
People generally lease cars because they prefer the flexibility of making only a three-year commitment and want less expensive monthly payments than if they bought an equivalent car. It often becomes less convenient and inexpensive if you want to exit the contract early.
Returning the vehicle before the lease expires is an option, but not a good one. You’re still on the hook for all the remaining payments, plus substantial fees and penalties for early termination.
“Any lease payment is made up of three parts. One is depreciation, one is your ‘cost of money’ or interest factor, and in most cases there’s a tax component,” says Scot Hall, executive vice president of Swapalease, a lease-trading site. “And if you wanted to end a lease early, you’re not going to see a discount on any one of those three factors, and have to make those remaining payments.”
Still, it’s not impossible to avoid the penalties when you end your lease early — and you may even save some money in the process. Here are three ways to do it:
1. Swap your lease
You might be able to transfer your lease to someone else who’ll take over the car and payments for the remainder of the contract. You can find potential takers by advertising the car yourself or posting on a lease-trading website. This sounds like a magical fix, but a lot depends on your automaker.
Check the leasing contract
Every automaker has its own financing company with slightly different leasing rules. Some, such as Hyundai and Kia, don’t allow transfers. Others have rules about when you can transfer, such as not within the first 12 months.
Even if you can transfer, you might have to worry about liability. A few automakers, including Volkswagen and Audi, hold the original lease holder responsible if the new lease holder stops making payments or totals the car.
All automakers check the credit of oncoming lessees.
Lease contracts often have a transfer fee of between $300 and $500, Hall says.
How to transfer your lease
Despite these fees, lease swapping can be the most cost-effective and simplest way to break your lease.
“We’re like a dating service for car leases,” Hall says. “Our primary goal is to match up a person who wants out with a person who wants to take over.”
You might also consider searching Craigslist for prospective lease transfers or transferring your lease to a family member, co-worker or friend. This may alleviate the stress if you’ll remain responsible in the eyes of your automaker.
2. Buy the car and then sell it
At any point during your lease you have the option to buy the vehicle, called an “early buyout.” The leasing company will determine the price based on your remaining payments and the car’s residual value.
Some automakers still require you to pay early termination or “buyout” fees, which vary depending on your contract. But you’ll avoid mileage or wear-and-tear fees.
Ask your leasing company for the car’s current buyout price. Then use a pricing guide, such as Kelley Blue Book, to determine if that’s above or below its current market value. If the car’s buyout price is lower than its market value, you’re in good shape because you have some equity. If the buyout price is higher than the car’s value, you have to accept the loss or find another way of breaking the lease.
Once you’ve bought out the lease contract, you can sell the car in one of two ways:
sell to the dealership
Take the car to any dealership and, if it wants your car, it will make you an offer. If you agree, the dealership will buy out your contract with the leasing company and send you a check for whatever money is left over. No sales tax is involved in this transaction. Remember, dealerships only pay you the wholesale — or trade-in — price, which will net you less than if you sold the car yourself to a private buyer.
Sell to a Private party
You can also sell your vehicle to a private buyer through a website such as Craigslist or Autotrader. But if you do, you might have to pay sales tax. Ask your local department of motor vehicles about your state’s rules.
3. Trade in your vehicle for another vehicle
You might be able to roll your current lease into another one at the dealership. You’ll still need to pay early exit fees, but they’ll be included in the monthly payments of your new car contract.
This option is ideal if you’re not having a major cash crisis but you want a different vehicle — for example, if you leased a luxury SUV but would now prefer a smaller, less expensive sedan.
Proceed with caution and check all the numbers in the contract to make sure you understand what you’re signing.
- Lease pull-ahead: Some dealerships offer these incentive programs, which allow you to skip your last three payments if you immediately lease another vehicle. These deals aren’t available year round or through every automaker, but if you can find one, it’s a good way to jump into a lease that better suits your lifestyle. It’s also a good way to avoid paying a penalty for going over your mileage if you’re reaching your limit early.
- Getting a dealership buyout: Some dealerships might also offer to do this if you purchase another car from them, usually in the last year of your lease. Again, read the contract carefully to make sure the dealer hasn’t charged you for a lease transfer. You’re obligated to lease or buy another vehicle from the same manufacturer, but your final payments are forgiven, and you can transition into a more affordable vehicle if needed.
Breaking your lease can be complex, and many people ultimately lose money in the situation. If you’re simply bored with your vehicle, it might not be worth the extra work.
But if your lifestyle changes dramatically, you might have to break a lease. Swapping your lease, buying the car or rolling it into a new lease can be a hassle — but the hassle can be worth it if you save a ton of dough on payments.
Nicole Arata is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.