While leasing a car gives you the flexibility of getting another car within a few years and making cheaper monthly payments than you would if you purchased a car, it can be a hassle if you want to end your contract early.
Before heading to the dealership to see if you can buy a car before the lease is up, it’s best to look at all available options. That way, you’ll know what you’re getting into and whether you can actually afford to do so.
How do you get out of a car lease early?
Terminating your current lease contract is possible, but it may cost you more than you bargained for. Car lease payments go towards interest, taxes, the cost of the car, and depreciation.
So, by ending a lease early, you may be required to make remaining payments and could also face a penalty on top of that. However, there are some alternatives.
Sam Olmstead, a consultant for Superior Honda in Harvey, Louisiana, suggests transferring your lease. All you need to do is pay a lease transfer fee, which can cost anywhere from $50 to $500, and the other person simply takes over your contract.
However, while you may not lose out on much money, this option does come with some severe consequences.
Olmstead says, “You still have the burden of liability for that car [you leased]. If the person you give that car to gets into a dangerous accident or stops making payments, you may have to pay that.”
For those who don’t need the added risks or potential high costs of the above two options, don’t worry – there are other options, one of which involves purchasing the car outright.
Can you negotiate the buyout price of a lease?
If you like the car, you can purchase it before your lease is up. Your lease agreement should indicate how much you can purchase the car for at the end of your lease.
Keep in mind that this amount is just a ballpark figure and you can actually negotiate the buyout price on your lease. Of course, this depends on the current market value of the vehicle and its actual condition.
In other words, the higher the value and better the condition, the more your car will cost. Add in any fees you may have to pay and see if it’s worth it.
Check outside sources (like at a bank or Kelly Blue Book) to see what the car could be worth. That way, you can compare it with the price of your lease contract and try and negotiate it down.
Can you trade in a car before the lease is up?
If you’re looking to get a new car, you could trade in your current vehicle for a new one at the dealership. You may still need to pay fees to get out of our current contract early, but you could have them included in the monthly payments in your new lease.
Dealerships will do an evaluation of the car and decide what the trade-in value is. If that value is larger than the lease payoff, you can use it as equity to purchase a new car.”
Before doing so, make sure to check everything in the old and new contract so that you understand what it is you’re getting into. Ask as many questions as you need to understand what your obligations are with your existing and new contract.
Can you trade in a leased car early to buy another?
You can trade in a leased car early to buy another car from the same dealership. Olstead mentions that all dealerships practice the same trade in policies.
“Dealerships will do an evaluation of the car and decide what the trade-in value is,” he says. “ If that value is larger than the lease payoff, you can use it as equity to purchase a new car.”
The bottom line
No matter which option you choose, make sure it makes financial sense. Even if you choose what seems like a low-risk option, making a large purchase isn’t a decision you should make on a whim.
Olmstead warns that financing a car that was previously a lease isn’t cheap and you may be paying more money than you bargained for.
Before doing anything, check to see what type of auto loan or refinancing you can qualify for using SuperMoney’s auto loan offer engine. You can get pre-qualified loan rates and terms without hurting your credit score.
Sarah Li Cain is a finance writer based in Jacksonville, Florida. She’s written on topics such as real estate, banking and FinTech and has appeared in publications such as KeyBank, Vistaprint and Quicken Loans.