If you’ve ever leased a car, you most likely know the benefits and disadvantages of the process: you get a more expensive, highly optioned car for a lower monthly payment than you would traditionally financing. On the flip side, lease payments are rent payments: you’re paying for your use of the vehicle. But what happens when you want out?
With a quick Google search, you will find massive amounts of advice concerning ending your lease early, most of which results in a bitter dispute between two forum users who still live in their parent’s basement. The reality of leasing is simple: you sign a contract where you agreed to make payments based upon voodoo calculations using the three following metrics (we are leaving out the money factor, mileage limitations, and security deposits for the sake of simplicity):
- The car’s total new value, the MSRP less negotiations or promotional incentives.
- What the car’s residual value will be; this is the perceived value of the car upon the completion of the lease term.
- And finally, the subtraction of the residual from the new-car price brings you to what the lessee will owe to lease the vehicle, this number is then divided by the number of months in the lease term, less any money down.
Now that the basics are out of the way, the difficult part begins: you leased a new car and your finances have changed or your lifestyle is pushing you over your mileage limitations and you need out. What do you do?
Well, you don’t have many options — all of which will most likely cost you money up-front. Let’s start with what I did just over eight months ago to get out of my 2013 Volkswagen GTI.
I wanted out of my lease because I was sick of having a two-car payment household and my work commute had drastically changed over the course of my two years with the car. I quickly realized that regardless of when I exited my lease — either at the conclusion of my term or earlier — I would be paying for something out of pocket to walk away.
I decided I was comfortable with paying for negative equity on the car now, rather than paying the remaining payments plus the foreseeable mileage overages at the conclusion of the lease. So, with that in mind I visited my local Carmax Dealer and told them the situation and that I knew I would have approximately $1,200 of negative equity — or the difference between what is owed on the car versus the current value of the car — and they provided a quick appraisal that was more than fair.
After searching the couch cushions and financially planning to exit the lease, I paid the difference and walked away. Do I regret it? Absolutely not.
It is important to note that many online aficionados suggest selling the vehicle private party, that it is no different than a financed vehicle. That may be true in theory, but remember that you signed a contract and you are not, and never will be (unless you purchase at lease-end), the owner of your vehicle. Selling to a retailer is different because dealerships and financiers have systems in place to handle these situations regularly —they have the access and knowledge necessary to complete the deal.
Many also suggest lease transfers — companies exist who exclusively do this, such as LeaseTrader or SwapaLease. Transferring the lease was not an option for me, but if you have someone who is interested, that may work for you. However, many financial institutions — I know VW Credit/Audi Credit specifically — keep the origninal lessee on the note as a “Guarantor,” which means: if the friend or family member you transferred the lease to doesn’t make payments, you are held accountable. No thanks.
Obviously, every situation is different and if you are looking to continue the lease or finance cycle, your options will vary. As always, make sure your decision is in your best interest and think about your long-term goals — it’s easy to get swept away by touchscreens and massaging seats.