Are There Penalties if I Turn in a Car Lease Early?

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Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 3, 2020

When you sign a lease, the total amount that you’re going to pay is predetermined. If you turn in your lease before you finish paying, you still might end up footing the rest of the bill for depreciation or even owing early termination fees (ETFs).

Ending a Lease Early

Ending a lease early isn’t as easy (or cheap) as getting out of an auto loan. When you take out a loan one a vehicle, it's yours. If you want to get rid of a loaned car before it's paid off, you can sell it or trade it into a dealership.

With a lease, it's more complicated. You and the leasing company signed a contract stating that you’re going to pay for a certain predetermined cost for the lease. Although leasing isn’t generally as expensive as taking out a loan for a brand-new vehicle, you’re still responsible for paying for it.

If you return your leased car early when you still have payments remaining, you’re likely to be confronted with ETFs, and possibly owe the rest of the depreciation you agreed to pay.

Sometimes, the early termination fees are based on how many lease payments you have left, while other times the fees are fixed. This all depends on the language in your leasing agreement, and the terms of your lease.

Even if you had a life event that made it so you can no longer pay for the leased vehicle, it’s very likely that the leasing company is still going to expect you to pay for the car – even if you’re no longer driving it.

Transferring a Car Lease

If you need to get out of a lease, you may be able to transfer it to someone else. Handing a leased vehicle to someone else isn’t as simple as selling a car to another person. Transferring a lease needs both parties (you and your leasing company and someone else and their leasing company) to be involved in the transaction.

First, find out if transferring your lease is an option available in your leasing contract. Then, you need to find someone else that can successfully pay the lease. They also need to have a good enough credit score that can qualify, and have enough income to afford the remainder of the payments. Once you find that special someone, there’s usually a lease transfer fee (could be around $100 or more).

It takes some time and work to transfer a lease, since the new lessee must also secure auto insurance and all the paperwork must be completed and signed by all parties.

By either finishing out the lease, or by transferring it to someone else, you can walk away from the vehicle without paying early termination fees or the remainder of the lease payments. If you simply stop paying on the lease for XYZ reasons, you’re likely to default on the lease and destroy your credit score.

Defaulting on a Lease

Defaulting is something different than simply returning it and paying the termination fees. If you default on a lease, it means you’ve stopped making payments. This can lead to a major credit score drop. Payment history is the biggest factor in determining your credit score, making up 35% of your FICO credit score.

If you do default, the leasing company also has the right to repossess the car, in which case, a repossession is now on your credit reports. After a repo, most lenders who review your credit reports aren’t likely to consider you for auto financing for at least a year (including subprime lenders).

The worst thing you can do to “end” your lease early is defaulting. Talk to the leasing company before you start missing payments if you’re struggling to keep up. You may be able to qualify for a deferment or forbearance program, but you won’t know what options are available to you unless you reach out proactively before you start missing lease payments.

Ready to Stop Leasing?

Leasing can be a great thing for many people, but others don’t want to have a car payment forever. If you’re ready to make the leap to an auto loan but don’t know where to start, look no further than CarsDirect.

If you’re in a unique credit situation and you need the right lender for the job, fill out our free car loan request form. We match borrowers to dealerships with bad credit lending options. Let’s get to work!

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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