Ending a car lease before the term is complete does not always require incurring a financial penalty, or potentially even losing money. Under certain circumstances, when terminating your auto lease you may, in fact, receive additional cash at the end of the lease (or at least not pay any penalties when returning the leased vehicle).
For those that have only heard the stigma surrounding car leases (that they’re a trap) think of the good news (lease escapes) and bad news (lease returns). There is also less-known examples (or techniques) on how to escape a car lease without having any major stress associated with doing so, or even profiting from your decision to end the lease early.
The Annoying Lease End That No One Wants to Face
You get to the end of your car lease and everything looks fine; the car is in decent shape, the mileage is acceptable, and you don’t think there will be any issues. Unfortunately, you forgot the annoying lease turn-in fee you will owe when returning your vehicle. The turn-in fee usually consists of a couple hundred dollars in cash (often more than the actual value of your auto lease), and you are going give back a vehicle that you have been making monthly payments on and will now have to pay for the privilege of returning it.
In essence, you have now swapped an auto lease for an auto lease, but this does not solve your original problem; you are still stuck in another monthly payment cycle.
This brings us to an important question, what other options do you have when it comes to exiting a car lease?
Purchasing a Car You Have Leased
You may not know this, but you can lease your car and then purchase it at any time. This is called the payoff amount.
The leasing company determines the cost of the car by taking the original cost of the vehicle and deducting the depreciation that you have paid throughout the term of your lease. The remaining balance is what you would pay for the vehicle if you chose to purchase the vehicle.
During the beginning months of your lease, the payoff amount is typically much more than the current market value of the vehicle. Cars tend to depreciate very quickly so as the months go by, you will find that the payoff amount is much closer to the current market value of the vehicle.
If the market value of your leased vehicle is greater than the payoff amount you could use this to your advantage and make some money!
A Plan That Has Great Potential but May Not Pan Out
This idea looks like it should work perfectly! If the market value of your leased vehicle is more than the payoff amount, you would purchase it and then sell it at a higher price, and save some money on the cost of your lease. You might even be able to make a little bit of extra money.
Generally, when purchasing a new vehicle, you will incur the costs of vehicle sales tax, title fees, and registration, which can reduce any profit that you would have otherwise received from the transaction.
This can make what you thought was a smart business move on paper become not so smart when you add it all up.
An alternative option to getting a car back is by having it purchased by a used car dealer through a direct transaction between them and the lease holder.
In very basic terms, this is how this will work:
- You bring your vehicle to a dealer for them to evaluate and make an offer (or maybe even get an estimate through an online request).
- If they make you an offer that meets or exceeds the pay off amount (the amount that you would owe), they would pay the lease holder for your vehicle and take possession of it.
- If you sold your vehicle for more than what you owe on it, the dealer would pay you the difference in cash.
Benefits:
- No fees associated with returning the car.
- You will not have to deal with the headache of car ownership documentation and vehicle title transfer paperwork.
- No taxes associated with vehicle transactions.
In short, you will hand the dealer the keys and leave.
Different prices at different dealers may be normal.
Comparing offers on cars helps the consumer save money.
Examples of different offers can include offers within approximately the same range as the actual amount owed on the lease, offers much lower to increase dealer profit, and one dealership offers a much higher price than all other dealers with better offers.
The manner in which dealerships operate can lead to a different amount being offered. Dealerships typically follow historical pattern pricing along with anticipated amounts they would receive from the sale of a leased vehicle to maximize their profit potential.
Buyers who lease through traditional dealerships expecting to purchase right after the term of their lease have to be careful because the dealership will have an advantage in value due to volume or inventory turnover, etc. Due to that volume/inventory, they have the ability to sell at a lower price and therefore make a higher profit than other dealerships that sell cars for full retail value.
By using the high demand of used vehicles as an example, we can see that the current used vehicle market value will create a higher offer price when compared to the other dealerships near you. At any given time, if demand is high for used cars, dealers will be more inclined to pay you a fair/profitable offer for your leased vehicle.
Thus, the greater value of your leased vehicle could be a result of general geographic or seasonal factors.
Finding these kinds of deals is generally easier during a booming market.
A good time to get out of an average lease is through the power of chance.
In some instances, both individuals and dealers will need to have enough time left on their lease to complete a transaction. If your lease is about to expire, you may need to extend your lease a little longer in order to take advantage of certain offers.
Although it may appear to be inconvenient, by adjusting your lease for a brief period of time, you will be able to access a much more desirable deal.
Sometimes, a phone call to your leasing company is all it takes to discover a new lease opportunity.
Minor changes can yield remarkably positive results.
When there is perfect harmony (e.g., your pay-off amount, an offer from your dealer, and the market conditions), it is astonishingly gratifying.
You will not incur a lease turn-in cost when you returned your vehicle.
You will not have to pay an additional month of lease payments.
You will not have the weight of your leased car hanging over your head.
You may also receive additional cash.
A termination feels much better than simply handing back your keys and paying a penalty.
Equally important, however, you will have improved your financial freedom and flexibility for your next step by doing this.
The typical automobile lease has several limitations because they require regular payments over a specified timeframe and provide no alternatives other than completing the term of the lease. Because most people feel they have to accept the lease agreement until the end, they do not always consider their options if they want to trade in their vehicle before the lease expires.
Therefore, knowing you can sell the leased vehicle, compare offers from different dealerships, and have the potential to get retroactive fees that would normally be paid at lease end will give you much greater flexibility with your financial decisions because the flexible options will change the perception from a strict obligation to a flexible opportunity.
Recognizing the fact that you can look for other good financial opportunities will lead to a much easier experience with personal finance over time.
Just because you have become stuck with an automobile lease, doesn’t mean you will be stuck with it forever. Through some research, price comparisons, and good timing, you may be able to exit your lease without incurring a penalty fee and possibly even receive some money back.
To do so, it is important that you know the payoff amount on your lease, determine the current market value of your vehicle, and explore the incentives offered by your dealership well before your lease’s expiration date.
In some cases, the best way to improve your financial situation will be to find a smarter exit strategy rather than continue with the lease.
