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Car Lease Termination

Know your options when your car lease comes to an end.

Car lease termination requires returning the car to the dealership. [©Shutterstock 2010]
©Shutterstock 2010
Car lease termination requires returning the car to the dealership.

At the end of a car lease, it is not uncommon to owe money as part of the car lease termination process. In some cases, the lessee may decide to purchase the car at the end of the lease rather than return it to the dealer. If a lessee chooses to terminate a car lease early, he or she can expect to pay more substantial fees. Transferring a lease to another person is often a better option financially than early car lease termination.

Terminate a Car Lease on Time

Car lease termination requires returning the car to the dealership. When a lessee has moved and cannot return the car to the original dealership, the lessee should check with the lease company to see if there is an affiliated dealership nearby. Usually the lessee has to pay a lease-end disposition fee, or disposal fee, which includes cleaning and reconditioning costs, storage fees and costs associated with selling the vehicle.

According to The Federal Reserve Board, two additional costs that a lessee may have to pay are fees for excessive mileage and wear. Most lease contracts allow 12,000 to 15,000 miles annually, so if the lessee may need to pay extra for exceeding the allotted mileage. The following types of damage may also require paying additional charges:

  • Damage to the car's body, seats or carpet
  • Parts that are missing or broken
  • Excessively worn tires
  • Cracks in the windshield

If the lease has a purchase option, the lessee may choose to buy the car at the end of the lease. This can be lucrative if the payoff value is lower than the resale value of the vehicle. To gain ownership of the car, the lessee pays the payoff value, or residual value, plus a processing fee.

Exiting a Car Lease Early

If a leased car is totaled in a wreck or stolen, the insurance company usually pays the amount owed on the lease, leaving the lessee to pay any additional fees. Early car lease termination caused by personal or business reasons is expensive and can have a negative impact on the individual's credit rating.

In order to end a lease early, contact the lease company to determine the cost of the early car lease termination. This cost is usually the difference between the early termination payoff stated on the lease agreement and the amount paid on the vehicle thus far, plus a prepayment penalty fee and a disposition fee.

Since early termination of a lease is considered a breach of contract, it can lower the lessee's credit rating. Finalizing the early car lease termination is simply a matter of returning the car to the dealer and paying the money owed.

Transferring a Car Lease

Transferring a car lease is usually a cheaper option than early car leases termination. It is a win-win situation because the lessee gets out of paying the monthly lease payments and avoids termination costs, while the person assuming the lease can commit to a shorter period than normal and does not have to pay the up-front costs associated with a new lease.

To transfer a car lease, first contact the lease company to see if a lease transfer is permitted. It is not advisable to transfer a lease to a stranger if the lease company permits transfers but holds the original lessee accountable for payments after the transfer.

There are many lease transfer companies online that specialize in transfers and work directly with the lease company, but Swapalease.com and LeaseTrader.com are two well-known sources.

After paying an advertising fee to the lease transfer company, the seller can post an ad on the company's Web site. The seller handles inquiries from interested parties, shows the car to anyone who is local and negotiates transfer terms. An additional fee is paid to the lease transfer company to process the transfer. The lease transfer company contacts the lease company and provides the documentation to sign.

This transfer process can take several weeks to complete, and the new lessee is responsible for any fees that the lease company charges to transfer the lease.

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