How to end a lease early without paying an early termination fee

This is part of a series breaking down all the terms you need to know if you’re buying a new or used car from a dealership. Check out the rest of the series at our Car Buyer’s Glossary.

So you leased a car and it’s not working out. Maybe your finances have changed. Maybe you hate the car. Maybe you leased it while single and now you’re married, there’s a kid on the way, and a Miata just isn’t going to get the job done.

Whatever the reason, being locked into that three-year lease is suddenly a burden.

Is there a way out?

The most obvious option is terrible. You can terminate your lease early at which point the leasing company will require you to make all remaining payments plus an early termination fee that costs hundreds of dollars. The chances of this being a good move for you, financially, is slim.

Another, far more palatable option, is to find another person to take on your lease. This is known as lease trading and there are a number of websites like Swapalease.com that can connect you to folks looking to take on the car you no longer want or need, then assist in the process of transferring the lease to them.

Why would you swap leases with somebody?

There are a number of perfectly good, legitimate reasons. Having a shorter lease could be attractive for any number of reasons. The lease deal you got could be better than what’s currently on offer. The car you have could no longer be for sale. They may just want to avoid a down payment or they could be in the same lifestyle change predicament you are. Whatever the reason, it’s not that strange.

So what happens then? The lease-trading website can assist in the bulk of the arrangement, including getting a credit report from the buyer, a vehicle history report for your car and arranging for a vehicle inspection. It will also, most critically, determine if it’s even possible to transfer your lease. The majority of leases can be transferred, but not all, and of those that can, some can require that you remain on the lease agreement. That means if the person assuming your lease fails to make their payments, you could still be on the hook for them. That’s an unlikely scenario, however.

In terms of costs, the person assuming your lease pays the leasing website’s fees and the bulk of costs in general. These should still be less than a typical down payment. You may be required to pay fees associated with licensing or registration depending on your state, but these typically aren’t onerous. So, if you’re looking to get out of your lease, lease-trading is definitely the most likely way to go.

Is there another option?

The final option is theoretically the best, but it requires a perfect storm of circumstances to leverage. If you’re a year or two into your lease, there is a chance that the amount you owe on the car is actually less than what the car is actually worth. Basically, the leasing company undervalued your car’s residual value (buyout amount) when you leased the car. This gives you equity, house money so to speak, which can then allow you to use it as a down-payment for a new car that you effectively trade for a new one.

Of course, this is predicated on your current car being in excellent condition and with low miles. Trading your car for another of the same brand also helps, but isn’t entirely necessary. That equity still applies.

So, although we would definitely recommend researching the current value of your car and then comparing it to your buyout price, we wouldn’t count on it. Residual values are quite accurate, and it usually takes changes to the marketplace in the middle of your lease to make this perfect scenario possible. In other words, lease trading is still your most likely option to getting out of a lease early and avoiding a hefty early termination fee.

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