Nobody goes into a finance agreement thinking they won't be able to meet their car payments for the full term, but what if life takes an unexpected turn and you suddenly find you can't afford your car lease anymore? It might feel like the end of the world when it first happens, but it isn't, and here's what you can do about it.
What to do first
The fact is, there's very little chance of you getting out of a car lease or any other sort of auto finance agreement without at least a little pain, but there are ways out, and some of them are not as expensive as you might think. As soon as you realize you're struggling to meet your car payments, you absolutely have to talk to the finance company. They will explain to you exactly how much it is going to cost you to hand back your vehicle early and terminate your agreement. You could accept this, hand the car back, and pay the outstanding fee, but there are ways to reduce the amount you end up paying to substantially less than the finance company will ask you for initially.
How much will it cost to end a lease early?
When you place the call to inform the finance company you are thinking of ending the car lease early, they will run a calculation to work out what you owe under the strict terms of the agreement you took out. As a rough guide, the amount will usually be 50% of your remaining payments, but there could also be additional fees for early cancellation added on top.
For example, if you took out a 36-month car lease at $300 per month and you want to end it after you've made the first 12 payments, the finance company is likely to ask for half of the remaining 24 payments, or $3,600. As I said, they could add further fees on top, but half of the remaining payments will make up the vast majority of what in order for you to settle early.
Unfortunately, there may be more to come. When you took out the agreement you will have agreed on the amount of miles you’re going to do in the vehicle over the term of the agreement. If you've done more than you stated there will be an additional charge per mile to be paid.
What additional fees might be charged?
Say, for example, your 3-year lease was based on 12,000 miles per year and you want to end it early after 12 months. If you've done 12,000 miles or less there won’t be an additional fee. However, if it goes back to the finance company with 15,000 miles on it after 12 months, and let's say the penalty rate is 5 cents per mile, the extra 3,000 miles you've driven will incur an additional charge of $150. If the vehicle has done 18,000 miles when it goes back, the extra fee will be $300, etc.
The vehicle mileage is only one area where there might be more to pay for. The condition of the car is also a factor, and this can be a big bone of contention if you're not up on your detail. Every leasing company has something like a fair wear and tear policy for when they take the vehicle back. Essentially, they accept that a car being used will deteriorate in condition over time, and the terms and conditions of the agreement will state exactly what they will accept when the car comes back to them.
Things like chips, scratches, and dents all happen to a vehicle over time and the company's policy will state what size, depth and amount of such damage will be accepted. If you've looked after the vehicle and there's nothing much wrong, there shouldn't be an additional charge to correct anything to put the vehicle back to the kind of condition it should be in for its age and mileage.
If there is damage outside the acceptable parameters when the vehicle is handed back, the finance company will get the work done to repair it and charge you. And believe me, they're not going to shop around and get the cheapest quote for the work to save you money. They'll have their approved repairers they use all the time, and you'll be footing the bill.
The best advice I can give in this area is to examine the vehicle yourself, well before it's due to go back, compare any damage to the finance company's allowable criteria, and get anything fixed yourself the finance company is going to charge you for. It will still cost you, but at least you can get the work done for the best possible price, and potentially save yourself hundreds of dollars or more.
You can negotiate the fee
The chances are, that if you need to go down the route of ending a car lease early, your finances aren’t in the best of shapes. Actually, you can use this to your advantage. When you call the company to tell them the situation and they give you the termination fee (not including mileage and damage charges – they are levied after the vehicle is returned and you can't get away from them), tell them you can’t afford it.
This isn’t going to be a shock to them. After all, you’ve already told them you want to return the vehicle because you can’t afford the car lease payments. What they will do then is a sort of affordability analysis. They'll ask you about your outgoings and incomings, any other outstanding loans and payments, and if you are up to date or behind with any commitments.
Don’t leave anything out, because the worse shape your finances appear, the stronger your negotiating position is. Remember, you're not threatening them with not paying them anything here. Instead, you let them know you do want to pay and that you’re keen to maintain your credit rating, but that the amount they've quoted is just too much.
Hopefully, although it's not guaranteed, they will then run another calculation. This will be based on a number of things, such as the amount they originally paid for the car, what it is currently estimated to be worth for its current age and mileage, and what their break-even point is. Although I can’t say how much they will discount the fee they want as it depends on so many factors, it's not out of the question that they could reduce the amount by as much as 50%; possibly more.
Transferring a lease
There is another way to get out of a lease early, and this one could see you released from your liabilities for no more than a few hundred bucks or so. I'm talking about transferring the lease to someone else who wants the car themselves and is prepared to take over the outstanding payments. Before I explain further, you need to understand this isn’t a guaranteed option for anyone with a lease they want to get out of early. Not all leases allow this option, and most of the time an arrangement like this can’t be done between two private individuals.
First, you'll need to establish whether the lease you have allows for the possibility of a transfer. If it does, you'll then need to contact one of the companies that specialize in transferring car leases. There are a number of them if you Google something like "car lease traders," and for a fee of around a hundred bucks, they'll list your car and its lease on their site.
Once someone who is happy to take the lease over is identified, the lease company carries out all the usual finance checks to make sure the person who wants to take over the car lease can afford it. Once the transfer is approved, the transfer company who facilitated the transaction will assess a transfer fee, which is likely to be several hundred dollars. Who actually pays this fee is a matter of negotiation between you and the person taking the lease over from you.
The one route to avoid
The one thing you should avoid doing at all costs is just letting things slide and take their course. If you can’t afford the payments and they stop, but you don’t do anything else, the finance company will repossess the vehicle and start proceedings against you to recover their full losses, plus their costs.
Not only would this course of action end up costing you way more than you’d be liable for if you took the initiative and contacted the finance company as soon as you know there's a problem, but it would also ruin your good credit and stop you getting finance in the future. It can be tempting to bury your head in the sand, ignore the demands coming through the post and the phone calls that will inevitably follow. Trust me, I know, I've been there and bought the shirt.
I've had to get out of a car lease early myself through no fault of my own, and I negotiated a discounted settlement with the finance company that saved me thousands. The transfer route would have potentially saved me a ton of cash, but in my circumstances at the time, I didn’t have the luxury of being able to wait for someone to be found to take the lease over.
Don’t forget, the advice and information I've given here are specifically for when someone needs to get out of a car lease early, and there are different options and considerations to take into account with other types of auto finance products.
Just keep in mind that it's not a crime to find yourself in financial difficulties, but the key to coming out the other side in the best shape possible is speaking to your creditors. Remember, they lose more if you default and they have to repossess the car than if they come to an arrangement with you, and bad credit is likely to follow you around long after you've got yourself back on your feet financially after a difficult spell. It's always imperative you make sure you can afford the payments before you enter any finance agreement, and be honest with yourself about anything on the horizon that could make the agreement unaffordable for you. But even those who take the greatest care to be sure the payments are affordable when they sign up can later find their circumstances change beyond recognition through no fault of their own, and those payments they had no problem to begin with suddenly become completely unaffordable.