It's easy to get drawn into a business or personal contract hire deal. They're convenient, good value for money and the low monthly payments seem easy to keep up.
Sometimes of course, like all things in life, your lease might not go to plan.
Perhaps you've got a new job that requires a lot of driving and you don't want to get hit with those pesky excess mileage charges. Maybe you can't keep up with the lease payments due to financial difficulties. You might even just really hate your lease car. You just can’t make it to the end of the lease.
This article will give the lowdown of what happens at the end of a lease that is terminated early, what the consequences are, and will give you some pointers on the best way to do it.
What are the potential penalties?
Leasing companies don't want you to terminate early. As such, they typically charge you some seriously hefty lease car return charges for some or all of the following:
- Any lease payments remaining - you need to pay what's left in your lease agreement. So, if you cancel at 12 months on a 24-month lease, you will have to make up the 12-month difference. If you pay £200 a month, that's £2400. Ouch!
- Early termination fee - A fee you pay to the lease company for the hassle of processing a lease termination.
- Costs to get the car ready for sale - This is a penalty for the lease company having to sort out the car to make it presentable to sell - fixing scratches, getting the car cleaned, etc. These costs will be in line with BVRLA guidelines for fair wear and tear.
- Storage of the vehicle - Including transportation to put the car into storage. It costs the lease company money to store the vehicle, assuming they don't want to sell it right away. They won't be happy footing the bill so this falls to you!
- Taxes associated with leasing - Since road is included in the cost of the lease, you might have to pay any outstanding tax left on the car.
- Negative equity - In some particularly harsh lease contracts, they will charge you the difference between the lease amount and the residual value of the car.
This is a pretty harrowing list, but it's not surprising. Lease companies really don't want you to terminate the contract early. These fees are in place to highly discourage you from getting out of the lease.
It's worth noting, your early termination penalties most likely won't include all of the above, but in pretty much every lease you will be required to, at the very least, pay the remaining payments and an early termination fee.
This isn't helpful if you can't afford to make your lease payments. You're surely not in a position to fork out a couple of grand to buy yourself out!
If you're rolling in it and just want a newer model, paying the remaining payments and the termination fee is the simplest way to end a car lease early.
As always, make sure you look over your car leasing agreement extremely carefully before signing it. Make sure that you're certain you'll be able to make the lease payments for the duration of the contract, and that you're happy with the car and your mileage limit.
Is there a cheaper way to get out? Can I buy and sell the car?
Depending on your circumstances, and your lease, you might be able to get out of your car lease with minimal penalties. One option is to buy your car outright and sell it on - but only if the leasing company agrees to this.
You likely won't be getting it at a bargain price, but this option can be cheaper than paying those eye-watering penalties. For instance, imagine you take out a lease on a Mazda but have decided that you're really more of an Audi guy/gal.
To get out of the lease early, imagine that you're looking at £2800 worth of fees. This consists of 12 months of your remaining repayments at £200 a month, plus a termination fee.
You discover that you can buy the car for £12,000 and sell it on for around £11,000. Because the car is in excellent condition, and you've barely done any miles, your cost of exiting the lease is £1000. This is obviously a far better scenario than paying almost £3000 in penalty fees!
To do this, you'd need to request the buyout amount from the leasing company, making sure you get it in writing. Then check out the market value of your car, and see if it's worthwhile. You can use a tool like Regit to find out the value of your car.
Unfortunately, you're going to need a bit of luck for this to work for you. If the depreciation on the car you're leasing is dire, and the buyout price is significantly higher than the market value, then it wouldn't make any sense to buy it and sell it on.
If the difference is cheaper than the lease termination penalties, then go for it!
Use a lease-trading website
Lease trading is where you pass your lease on to someone else. Of course, you will need to make sure that this is allowed in the terms of your lease agreement. Often, the lease company just wants to be paid and doesn't care who's paying them.
Why would anyone take on this lease that is causing you such misery? Well, many buyers are interested in a short term lease at a decent price.
Say you have 8 months left of a lease and you pay £180 a month. In the current market, it's impossible to get an 8 month lease that cheap. If the buyer only needs the car for the 8 month period, a lease transfer is a great deal for them, and it also gets you out of a bad spot as well. It's a win-win!
If you're interested in a car lease transfer, use a website like Swap-A-Lease that will let you list your car. This is much the same process as selling your car online. You need to list your car and it's info on the site, including what's left on the lease. You then have to find a buyer who's interested in your lease.
Of course, websites like Swap-A-Lease will charge you a fee for listing the car. On this site, you will have to pay £39.99 to list your car, and then the cost of 2 months rental if you successfully transfer the lease. So if your monthly lease is £180, you would have to pay a ‘successful transfer fee’ of £360 to Swap-A-Lease.
While this seems like a great option, be warned that it's not for everyone. Some lease agreements will not allow it and will require that the original holder of the lease - i.e. you - needs to be in the arrangement until it's terminated.
In this case, even if you trade your lease, you will be held responsible for costs at the end of the lease, such as damage to the vehicle and excess miles. Read the details of your lease agreement carefully before considering swapping your lease.
Lease another car through the same dealership
While this isn't a sensible option if you're changing lease due to financial difficulties, it's a fairly decent deal for those who just want a new car.
Some lease companies will let you take out a new lease and carry on the remaining monthly payments from your last one. This can make your monthly repayment quite a bit more expensive, of course.
For example, say you have 8 months left on your lease and you pay £200 a month. You owe the leasing company £1600. If you take on another lease at the same monthly price for 3 years, your total repayment over the lease agreement is £8800 (not including transfer fees for the transaction, or a down payment, etc.).
Unfortunately, because you owe the lease company £1600 from your first lease (8 months of repayments), you’d need to settle this in the first 8 months of your lease contract.
This would make your first 8 payments a whopping £400 a month, and then £200 from then on. If you're truly desperate for a shiny new state-of-the-art car, paying extra for 8 months might be worth it for you.
Default on your lease
This is the nuclear option. When you absolutely, categorically can't make your payments, you're going to need to default on your loan.
In this scenario, you need to contact your lease company and tell them you want a voluntary repossession of the car. This comes with fewer penalties than a forced repossession, where you refuse to give the car back and don't make the lease payments... not a great idea!
At this point, your finance company will let you know your options. In most cases, the company will want to work with you and can offer arrangements to let you keep the car and perhaps pay them off over a longer-term (sometimes with interest). If this isn't an option, you will need to hand the car back.
Of course, you're then liable for the remaining lease payments and will have to pay back the debt at some point. This is obviously a very stressful situation to be in. Defaulting on your car lease will punch a huge dent in your credit score and may reduce your chances of getting a mortgage, or a personal loan if you need one. If you're stuck in this situation, it's important that you seek debt advice.
Summary - so what's the best option?
Whatever is the cheapest for your circumstances!
To recap, if you decide that you absolutely want out of your lease, whether you can't pay or just want a new vehicle, you should take the following steps:
- Work out what your penalties will be for early termination. Read over your lease contract and calculate what the fee might be.
- If this fee is astronomical, work out the buyout price of your car and the current market value. If this is cheaper than the penalty fees, then happy days. If it’s not, you might need to take one of the other 3 options.
- Transfer your lease to someone else using a website like Swap-A-Lease.
- If you're in a bad spot and are completely stuck and can't pay the lease payments, then give the vehicle up for voluntary repossession and seek some advice on how to handle the debt.
Of course, the best option is to not need to end a car lease early at all! Make sure you take out a lease that is affordable for your budget, and that you're not struggling to pay.
If you put a private plate on your financed car, you'll make arrangements with the leasing company or new lessee to make sure you get your plate back.