Published in: Credit Cards | Nov. 20, 2018
How to Get Out of Your Car Lease Without Hurting Your Credit
By: The Ascent Staff
You wanted a new car, but you couldn't afford to buy it outright, so you decided to enter into a lease. Now it's been a couple of years, and you've decided that you want out. Unfortunately, that's much easier said than done. Breaking a lease often comes with steep penalties that could end up costing you more than simply sticking it out.
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Some people decide to just stop making the payments, but this is the worst thing you could do. You'll end up accruing late-payment fees, and eventually, your account will go to collections. This will significantly lower your credit score, which can make it difficult for you to get a new car lease or loan in the future. Here are some better strategies you can try instead.
Transfer the lease
Many car leases enable you to transfer the lease to another person. If you can't find someone on your own, you can post your lease to a lease-swapping website. Share the details of the vehicle and the lease, and if someone is interested, they'll contact you. Then the website will assist you in working out the legal aspects of the transfer.
You may be required to pay a lease transfer fee, which can cost up to $500. Some lease agreements require that you retain some liability even after you transfer the lease, sort of like being a cosigner on a loan. If the new owner of the lease falls behind on their payments, you will be expected to take them over again.
It's also worth noting that not all lease agreements allow a transfer. Read your agreement carefully to ensure that this is an option before you pay to post on a lease-swap website.
Buy, sell, or trade
Most lease agreements enable you to purchase the car at any time for a designated buyout price, which you can find in the agreement. If you can afford to do so, this is the quickest and easiest way out of the loan. Then, if you decide you don't want the car, you can sell it. However, this is usually only a good idea if the resale value of the car is equal to or greater than the buyout price.
You can also try taking your car to a dealership and seeing if they will buy it from you. They will pay you wholesale value, which may be less than you could get by selling it privately, but you may have trouble selling it privately since you can't hand over the title until the lease is paid off. If the dealership agrees to buy the car from you, you can take that money and apply it toward your lease's early termination fees.
You may also be able to trade the car back to the dealership you bought it from and buy or lease a new car. If you're getting a new lease, the dealership may enable you to roll over the outstanding balance into your new lease. That gets you the new car you want with no early termination fees, but it doesn't free you from paying back what you owe.
Getting rid of the lease so that you can buy a new car is a little trickier, and your lease agreement may not allow this unless the car is worth more money now than had been anticipated. In that case, you may be able to negotiate a deal with the dealership that gets you out of the lease without paying all of those hefty fees.
Give it back and pay the penalties
You always have the option to return the car and pay the early penalty fees. You can find out what these fees are by checking your lease agreement. It may be a flat fee, or it may depend on the current balance on the lease. They may charge you additional fees as well, including any repairs or maintenance the vehicle needs and other costs associated with getting the car ready for sale. It's not uncommon for all of this to add up to several thousand dollars when all is said and done.
Before you do this, it's a good idea to compare these costs against how much you would pay if you stuck with the lease payments until it was paid off. This may be the smarter course of action if the cost difference between the two options is negligible.
Getting out of your car lease before its end date may or may not be possible. You're unlikely to get out of it without your wallet taking a hit, but better your wallet than your credit score.
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