Leasing your car can be an expensive way to get around. And if you suddenly find yourself unable to afford your existing auto lease, you can’t just put your car up for sale or run to the dealer to trade it in. But what most don’t know is: Yes, you can get out of a car lease without hurting your credit. Here’s how.
Car dealers calculate the cost, term, and mileage of leases carefully to ensure they earn a healthy profit.
Their profit depends on you keeping (and paying) the lease to its full term, so you can’t expect a dealer to be sympathetic to your situation if you return with your leased car keys asking to get out.
While most leases include an early-termination clause, the penalty fees for ending your lease early are stiff. It is unfortunate, but sometimes lessees will simply stop paying a lease until the car is repossessed. This ends the lease, but it also ends the lessee’s good credit. Additionally, the car dealer has the legal right to collect termination fees and other costs from the lessee.
The Alternative Way to End a Lease
Some leases (thought not all) allow you to transfer the lease to a new signer. In a lease transfer, a new lessee assumes the car, and the lease payments, and you are released from any responsibility for the lease.
While a great idea in principle, executing a lease transfer is not always a smooth process, and generally can’t be done between two private parties.
There are, however, companies that specialize in assisting with transferring car leases — one example is Lease Trader
Sellers pay a fee (around $100) to list a lease for trade. When a buyer bites, the third-party company checks their credit and income to ensure they can afford to take on the lease. Once a trade is approved, the lease transfer company assesses a transfer fee of several hundred dollars. Who pays this fee is typically negotiated between the buyer and seller.
Both parties then sign documentation transferring the lease, and documents are sent to the buyer so her or she can obtain insurance and registration for the vehicle. Finally, arrangements are made for the seller to pick up the leased car, and the former lessee is free of the lease, with good credit to boot.
Proceed With Caution
While leasing a car isn’t the best financial move, terminating a car lease is an even worse one. That’s because most leases have high down payments (called capital cost reduction) which you have already paid, but you won’t get the full lease term’s use of the vehicle. Plus, you’ll be paying more fees just to get out of a car, and you’ll still be stuck needing new wheels. Still, if you find yourself in a car lease that you truly can’t afford, it’s better to get out of it, save your credit, and find a car you can afford than to rack up new debt to continue paying your lease.
And, if you ever find yourself in a situation where you need a new car for just one to two years, taking on a transferred lease might be worth checking out. After all, you won’t pay any down payment other than the lease transfer fee.
Of course, for the perfectly penny wise, calculating the total lease cost and spending that lump sum on a reliable used car still makes the most sense.