Monday, October 02, 2023

Getting Out of a Car Lease is Not Easy


Why is not easy to get out of a lease?

Leasing is an old business concept that was around long before it was introduced to automotive consumer leasing. The concept has remained virtually unchanged, as has the language of leasing, even though consumer leasing is not quite the same as business leasing.

In the past with business leasing, it was almost unheard of to end a lease early. For example, a business might have leased a construction vehicle for, say, four years, and completed that lease as contracted. Simple.

Because business leases were always completed on schedule and never ended early, some shortcuts could be taken in how lease financing was arranged. A simplified payment calculation that assumed level depreciation was adopted. 

Of course, we all know that any equipment, including motor vehicles, depreciate more rapidly in the first year or two than later. This means that the equipment loses value faster than the lease is paid off. But this didn't matter as long as the lease was completely paid off on the agreed-to schedule.

Enter automobile consumer leasing. 

People want out a car lease early for any one of a number of reasons - don't like the car, like another car, lost job, lost health, divorce, and other reasons. 

Since the same payment methods are used as are used in business leasing, this presents a problem. 

At the time the consumer wants to end his lease, he most likely owes more on his remaining lease balance than his vehicle is actually worth, due to a rapid early depreciation rate. This means, in order to end his lease, he will have to pay the difference between what he owes and the market or auction value of his vehicle. This can often amount to thousands of dollars. On top of that, many leasing companies add a early-termination penalty fee.

If you absolutely must get out your lease early, read our other posts here for possible solutions. If none are found, consider simply riding out your lease until the end when you'll owe nothing more. And by all means, avoid any form of repossession. It will ruin your credit history -- and you'll still owe the money.