Car Lease Early Termination Penalties Explained

Early termination penalties for a car lease can be a huge deterrent if you are not prepared. When you lease a car, you've entered into a contract with the leasing company that you are taking possession of a car for a certain time frame. This contract can work unless you realize you will need to terminate early. Getting out of a car lease early can be extremely costly and at times the financial penalties are almost equal to the remaining payments. In this situation, you will want to know the potential consequences of leasing, the options with fewer consequences and those options that are more detrimental.

Potential Consequences of Leasing

Some consequences of leasing include all the fees they charge at the beginning and end of your lease. These fees include disposition fees, down payments, wear and tear if you do not maintain good records of your maintenance and over mileage fees. When trading in your lease, the dealer is not required to itemize your trade in, therefore allowing room for you to be ripped off. When you lease, they require you hold a certain minimum insurance policy which ends up costing you more money then if you owned the car. These consequences can be exacerbated if you decide to terminate your lease early.

Options with Fewer Consequences

Some people decide they would like to buyout their lease and own the vehicle. This can sometimes work in your favor and not be as costly if the value of the car held up better than projected by the leasing company. Otherwise this can be costly if the dealer determines the price of sale to be higher than the actual market price. Even in the latter situation, you still have the power to negotiate your buyout. You could also look into a car lease swap. This is the most advantageous because it allows you to walk away without affecting your credit score and someone else will resume payments on your lease.

Options with More Detrimental Consequence

Another option is to return your vehicle to the dealership. If you do so, you are still required to pay your lease until the end of the contract. Instead you may decide to lease another car. This can be costly if you have negative equity in your vehicle. The amount of negative equity will be rolled over into your new lease payments which could increase your monthly payments or extend the length of your lease. Car repossession is an option if you decide to just stop making payments. In the short run, it is possible to get away without having to pay the dealership what you owe, but in the long run your credit score will be damaged and negatively affect any future borrowing.

Many companies present leasing as a wonderful opportunity that you cannot refuse. It is recommended you research all information regarding leases before making a decision. If you keep a car for a long time you will end up spending less if you buy rather than lease. Whether you terminate early or see the lease contract through, there are a wealth of clauses and fees that can be costly if you are unaware.

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