How to End a Car Lease Early

When ending a car lease early, understand the financial implications to avoid penalties and to choose the best option based on your circumstances. Here’s how to make sense of lease agreements, explore early termination options, and the steps involved.

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5 minutes

Date

06.06.2023

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How to End a Car Lease Early

Car leasing is a common way to land your next vehicle. With medium and long-term leases available, there may be a time you have to end your lease early. Perhaps you are unhappy with your car, end up in financial difficulty, or are moving away. While it is possible, it may be a financial penalty to do so. Choosing the right way to end your lease can save you potentially thousands in fees. So, here are the steps for ending a car lease early.

Can you end a car lease early?

Yes, you can end a car lease early. The terms outlining how you can end your lease will depend on the type of contract you have with the leasing company. There is often a hefty fee associated with ending your lease earlier than the agreed end date too. 


If you need help with finances, then contact your lease or finance company immediately. They might be able to help you out by adjusting your terms and payments.

How to understand your lease agreement

A lease agreement is a legal document between you and a car provider. It's designed for you to commit long-term to a new vehicle, based on several conditions set out in the lease. Items listed on a lease agreement include leasing time, monthly prices, added charges, vehicle use restrictions, and mileage limits. There may be some terms you are unfamiliar with though.


Here are a few jargon busters to explain the terms of a lease agreement:

  • Acquisition fee: A fee charged by the leasing company to start your lease. Similar to a membership fee, it’s used to sign up at the start to begin owning a new vehicle. The cost can vary but is typically around $400 - $500 and cannot be negotiated.
  • Adjusted cost: The final amount on which your lease payments are calculated. A number that determines how much you will be paying each month. Taking into account any discounts, rebates, or down payments already made. Therefore the lower the adjusted cost, the better price you pay.
  • Early termination: When you need to end your lease before the agreed-upon timeframe. This is not always by choice, as cars get stolen, or damaged beyond repair. Depending on the incident, you could still be responsible for these fees. Having a good gap insurance plan will help cover these penalties and the remaining lease balance.
  • Gap insurance: This is your ideal financial safety net. Gap insurance covers the difference between your insurance company payout and the amount you still owe to the lease company. It can save you from owing thousands of dollars. Also, gap insurance often includes coverage for penalties related to early termination. Many lease companies offer affordable gap insurance as part of the lease, making it the smart choice for added protection.
  • Flexible lease: A lease that gives you options. With a flexible lease, you can decide whether you want to buy the car at the end of the lease or simply return it.
  • Inception fees: These fees need to be paid before you start your lease. They include a down payment, security deposit, acquisition fee, first-month payment, taxes, or title fees. It can be overwhelming but some lease companies allow you to combine these fees to make a down payment that can help you lower your monthly payments. The inception fee may add up to thousands of dollars but can make starting your lease journey easier, as most of the costs are covered immediately.

Early termination options

If you arrive at a situation where you need to end your car lease early, there are ways you can do so. Your lease agreement may have a few options in the form of cancellation rights, but this process can be expensive. 


Ending a lease early can incur a few costs, they include paying the remaining lease payments in full. For example, if you cancel your 24-month lease after 12 months and your monthly payment is $400, you'll need to make up the difference of $4,800. That can sting.


However, there's a silver lining. Some companies offer a more lenient option, asking for only 50% of the remaining payments, along with additional termination fees. This can provide some relief in a tough situation.


Also, the leasing company may offer a custom deal depending on your unique circumstances. They might calculate a fee based on factors like your mileage and the number of months left on the lease, rather than requiring a specific percentage of the remaining payments. This tailored approach can help ease the financial burden.


Remember, when considering ending your lease early, it's crucial to understand the payment options available to you. Stay informed and explore the best solution that suits your needs, here are the top four options for ending your lease early:

The new person will become responsible for the vehicle and making the monthly payments. Some lease companies require you to be a co-signer on an insurance policy though. Meaning if the new owner of the lease does not make payments then you will have to. Be cautious when using this process and seek legal advice if you are ever unsure how it works.

How to terminate your car lease early

When ending your car lease early make sure to prepare the vehicle by washing and detailing. It is also a good idea to check the tires for their condition and tread depth. If you need to, purchase and install new tires (especially if the tread is low), as lease companies can penalize you for wear and tear. Then prepare for your lease to end by taking pictures of all parts of your car including exterior, interior, mileage, and any scuffs or marks that happened during your lease. Then use one of the options explained previously to end your lease early.


Make sure you choose the best option financially for you and your circumstances. It may take some calculations at the beginning, but ending your lease the right way can save you thousands in the long run.