What Happens If I Turn My Lease In Early?

A car lease is a contractual agreement where you pay to use a vehicle for a set period, typically two to four years. People consider ending a car lease early for various reasons, such as a change in financial circumstances, evolving transportation needs, or dissatisfaction with the vehicle. Returning a leased car before its scheduled term is possible, but often involves substantial financial implications. Understanding these costs and options is important for navigating the process effectively.

Understanding Lease Agreement Terms and Early Termination Costs

Lease agreements are legally binding contracts. Early termination involves several financial components, with costs generally increasing the earlier a lease is terminated.

You are responsible for covering the remaining scheduled lease payments, even if the vehicle is returned before the original term concludes. Many lease agreements include an early termination fee, which compensates the leasing company for lost income and administrative costs. This fee varies but can be a substantial portion of the remaining lease balance.

The vehicle’s residual value, its estimated worth at lease end, is predetermined at inception. Your monthly payment covers depreciation, fees, and interest. If the vehicle’s market value at early termination is lower than its projected residual value, you may be responsible for the difference.

A disposition fee, typically $300-$400, is often charged when returning a leased vehicle. This fee covers the dealership’s costs for preparing the vehicle for resale. Some leasing companies may waive this fee if you lease another vehicle from them.

Excess wear and tear charges apply for damage beyond normal use, such as large dents, significant scratches, or worn tires. Leasing companies provide guidelines for acceptable wear versus excessive damage, and you will be billed for necessary repairs.

Excess mileage charges apply if the vehicle exceeds the predetermined mileage limit. These per-mile fees compensate the lessor for additional depreciation and wear. Costs per excess mile range from $0.05 to $0.45, depending on the manufacturer and lease terms.

Breaking a lease does not directly appear on your credit report, but unpaid fees or balances from early termination can negatively impact your credit score. Unpaid amounts sent to collections can significantly lower your score and remain on your report for up to seven years. Paying all owed amounts helps prevent adverse credit impacts.

Exploring Early Lease Termination Options

Several options exist to manage early lease termination costs, each with different processes for handling remaining obligations.

A lease buyout involves purchasing the vehicle outright from the leasing company. This includes paying the remaining lease balance, the predetermined residual value, and any early termination fees. If the vehicle’s market value exceeds the buyout price, selling it can recoup costs or yield a profit. Conversely, a lower market value could result in a loss.

A lease transfer (or lease assumption/swap) allows another party to take over your remaining lease payments and obligations. This can be a cost-effective way to exit a lease early, avoiding full termination penalties. The new lessee typically submits a credit application for approval. Transfer fees, often $300-$600, cover administrative costs. Some leasing companies restrict transfers within a certain number of months remaining on the lease.

You can also trade in the leased vehicle or sell it to a third party, like a dealership or independent buyer. A dealership may buy out your lease as part of a trade-in for a new vehicle, often handling the payoff directly. Dealers may waive early termination fees if you enter a new lease or purchase agreement with them. When selling or trading in, determine if the vehicle has “lease equity” (market value exceeds payoff amount). Positive equity means you may receive a check or apply it towards a new vehicle. Not all leasing companies permit direct sales to third parties, so check your contract and contact the lessor.

The Early Lease Return Process

After choosing a termination option, the practical steps for returning the vehicle early begin. The process formalizes the return and settles any remaining obligations.

Start the early return process by contacting your leasing company or the originating dealership. They will provide specific instructions and clarify their early termination policies, which vary by provider. Obtain information on potential costs and procedural requirements directly from them.

A vehicle inspection is standard, assessing the vehicle’s condition for excess wear and tear and verifying mileage against lease limits. Schedule this inspection in advance, and address any noticeable damage or maintenance issues beforehand to minimize potential charges.

Gather necessary documentation: your original lease agreement, vehicle registration and title (if applicable), and personal identification. Maintenance records are beneficial to demonstrate proper care. Having these documents streamlines final paperwork.

Finalize paperwork and make any outstanding payments. This includes signing termination agreements and settling remaining financial obligations, such as early termination, disposition, excess mileage, or wear and tear fees. Ensure all agreed-upon payments are made to close out the lease account.

Obtain written confirmation that the lease is officially terminated and all financial obligations are settled. This documentation proves you are no longer responsible for the vehicle or contract. Keep these records for your files.