Monday, October 02, 2023

Misunderstandings About Getting Out of Car Lease

Many people who lease cars don't really understand leasing and how it works, including how to get out early.

First, leasing is not renting, as many people think. You can't simply return your car before lease-end. A lease is designed to be completed, and is a legal contract to do so.

A car lease is a form of financing like a loan. From the beginning to the end, there is a balance remaining each month. However, unlike with a loan, there is no way the leasing customer can know exactly how much is owed without contacting the lease company. It is not simply the sum of remaining payments, as many people believe.

Getting out of a car lease is not simply returning the car and paying a small "penalty." Although some lease companies do charge a penalty, the more significant cost is the account balance, after subtracting the car's auction sale price. This amount, for most people, will be thousands of dollars.

You can't end your lease by sub-leasing to someone else -- someone who will take your car and make payments. To do so violates your lease agreement and puts you at risk. However, with your lease company's permission, you might be able to "transfer" (not sub-lease) your lease to another party. Some lease companies allow it, some do not. You should contact your lease company to find out.

It is usually not practical to try to trade a leased car, say, for a less expensive car. Since most leases are "upside down" there is no trade equity. It would be unwise and financially impractical in most cases to add the negative equity to the price of another car. Even if you were allowed, the large amount of negative equity would make your new car much more expensive, and you would be even more upside down.