Three smart ways to get out of your car lease

By Brent Romans
Edmunds

Lacie Romano, a Los Angeles resident, is stuck paying for a vehicle she no longer needs. Like many Americans, her situation has been upended by the pandemic. “I leased a 2019 Lexus NX 300 before the pandemic started but I’m only driving it a couple times a week now,” Romano said. “I really like my Lexus but it’s hard to justify the monthly payments.” What should people in this situation do?

On the surface, getting out of a car lease isn’t difficult. A typical lease agreement has instructions on how to end or terminate early. It’s the potential financial penalties for doing so that are the issue. Minimizing this financial fallout is key.

To start, identify why you want to get out of your lease. You might be in a financial situation similar to Romano’s, or maybe you want out because your vehicle no longer matches your needs or wants.
Here are three ways to go about it.

SELL YOUR LEASED VEHICLE

Consider this method if you don’t need your vehicle anymore or can’t justify the payments. The financial impact will depend on: a) your vehicle’s residual value; b) its actual market value; and c) how many payments are left on your lease.

The residual value, which is listed in your lease contract and set by the financial company, is an estimate of how much the vehicle will be worth when the lease expires. It also serves as the purchase price of your vehicle should you choose to buy it at the end of your lease.

Actual or appraised market value is a current estimate and essentially the answer to, “How much is my car worth?” You can get it by entering your vehicle’s info on sites such as Edmunds or taking your vehicle to a dealership. You can also get online cash offers from nationwide dealers such as CarMax.

This method can seem a little complicated because your leased vehicle technically belongs to your finance company. You’re not really the one selling it. But essentially the dealership is buying the vehicle on your behalf to turn around and sell it for a profit later.

Should you choose to do this, you’ll still be on the hook for the residual value and any remaining payments or fees on your lease contract minus the purchase money the dealership gives you. Typically, the financial impact will be smaller the closer you get to the end of your lease.

But in the case of Romano’s Lexus, the end of the lease is a ways off and the appraised market value is not high enough to make a sale a financially viable option.

TRADE IT IN FOR A DIFFERENT VEHICLE

This method is similar to our first one. You’ll still sell your vehicle to a dealership. But instead of walking away, you’ll exchange it for another vehicle as a new lease or purchase. Consider going this route if your current leased vehicle isn’t working out. Maybe you’re starting a family and need a bigger vehicle, for instance, or maybe you really want a new vehicle that has just come out.

The same financial considerations from above apply here. But to help stretch out the financial blow, the dealership can roll any money you owe into the new vehicle’s monthly payments. Bear in mind that your payments will be higher. And if you’re financing the car, you’ll likely be “upside down,” meaning you’ll owe more on the loan than the new car is worth.

SWAP OR TRADE YOUR LEASE

Most lease contracts allow another person to take over a lease. There are a few websites, such as leasetrader.com and swapalease.com, that act as an intermediary to connect lease sellers with people wanting to assume a lease. In the abstract, you’re asking somebody: “Hey, want to take over my lease payments and get my car?”

These lease sites do charge a fee. Additionally, leasing companies may charge a fee to run an applicant’s credit and transfer the lease. The person assuming the lease bears the bulk of the costs, though in some cases the lease will stipulate that the seller maintain some post-transfer liability.

As a seller of a lease, it’s important to make your vehicle stand out on these trading websites. You might have to put up some additional cash as an incentive. Buyers are typically looking for the best deal. It helps to have your vehicle in good condition and below the lease’s mileage limit too.

Going this route will take some effort and money upfront but is likely the best option for people with many months remaining on their lease. Romano is currently listing her Lexus for a lease swap.

EDMUNDS SAYS:

There’s no pain-free way to end a lease. It is, after all, a contract. But picking one of these suggested options is vastly better than defaulting on your payments.