Car Lease Termination: How to Avoid Penalties

A car lease has a lifespan as one of its conditions, over which time you agree to make monthly payments, but in the event you wish to get out of it, car lease termination is an option. The downside is that for early termination, unless you do pretty much one of two things, you will end up paying a penalty. Even if you keep your lease until the end of its term, if you have exceeded the mileage allocation originally agreed upon, or if, because of wear, tear and other depreciating factors the car is worth less than its predetermined residual value, you will also face penalties.

To avoid accruing a penalty for either terminating your lease early, excessive mileage or wear and tear, you need to educate yourself about your options and keep a watchful eye on the contract, knowing exactly for what charges you will be held liable.

Excessive Mileage or Wear and Tear

Upon signing a car lease, you agree to only drive the maximum amount of miles detailed on the lease. Should you exceed this limit, you will be charged a penalty for exceeding it. Likewise, your leased auto is designated with a residual value, the amount the car should be worth at the end of the contract. This is what helps keep your payments down, but should you return the car with more wear and tear than was expected, you will again face a penalty. Neither of these scenarios deals specifically with early lease termination, but being aware of them decreases the likelihood that you will be charged fees upon returning the car.

Early Termination

Terminating your car lease early is done for a variety of reasons, several of which will stick you with a fee for doing so. In order to avoid the penalties, you really only have 2 options: a lease swap or leasing a new vehicle. A lease swap involves finding another party who is willing to take over the lease of your vehicle. If the lease company allows it, it works in both your and the other party’s favor. They avoid having to make a costly down payment, and you get out of your lease early without being penalized. Provided the company will go along with it, you will, of course, have to find a person interested enough to take it over.

The second option involves leasing another vehicle. You can simply return your leased vehicle to the dealer early if you wish, but you will still be obligated to make the monthly lease payments. If that is not penalty enough, if you decide to stop making the payments, not only can the car be repossessed, but your credit rating will be adversely affected. By trading up, so to speak, for a new lease, you roll over your current lease into the new one. Here’s the catch, though. If you still owe more than the car is worth, the difference will be tacked onto the new lease, increasing your monthly payment. Additionally, you might be assessed new lease charges as well, so your best bet is to make a lease swap.

Avoiding fees for the early termination of a lease can be tricky, but it can be done. It won’t do to simply return the car early or stop making payments—in both of those cases you will be charged. Take some time to investigate your options before you make any decision, and you will be better prepared for the task ahead.