What happens when you break a car lease?
Breaking a lease is not smart. But there are ways to get out of one.
Leasing a vehicle is a great way to enjoy the benefits of a new car without many of the obligations of owning it.
But what happens when life circumstances change and you don’t need the vehicle any more? Do you simply drive the car back the dealership and explain you don’t need it anymore?
Not exactly.
What the dealer wants
“Consumers should always talk to the dealer prior to doing anything rash to break a lease,’’ Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association told Boston.com in a statement. “Such an action would have a very adverse impact on the consumer’s credit report, and such a [black mark] would not be easily fixed.’’
But sometimes life throws us curveballs that make the lease unnecessary and financially burdensome. This could include losing a job, or a new family member, or relocating to another part of the country. Even though you may want to part ways with the car, you are still on the hook for the remaining balance on the lease agreement.
“The easiest way to think of it is: when you start a lease, you are signing a contract to pay a total amount of money spread out in monthly payments,’’ said Philip Reed, Edmunds.com’s senior consumer advice editor.
“If you’re halfway through a lease, you have to pay all that [remaining] money to the leasing company,’’ said Reed. “They won’t say, ‘That’s too bad about you losing your job.’ They want the rest of whatever you agreed to pay.’’
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Is there any recourse?
Reed points out some websites, including Swapalease.com and LeaseTrader, offer marketplaces for current lessees to find someone to assume responsibility for a lease they no longer want or need. Scot Hall, executive vice president of operations for Swapalease.com, spoke with Boston.com about how the company operates. (A message left for LeaseTrader by Boston.com was not immediately returned.)
“We’re like a dating service for car leases,’’ said Hall. “We want to match people who want get out of their lease with people who want to get into short-term leases.’’
Swapalease.com offers consumers currently in a lease a “listing package’’ that starts at $100 and can go up if they want to pay for additional exposures. Consumers looking to take over a new lease can pay $50 for a lifetime membership, which Hall says is a good way to appeal to serious parties.
“It’s a good way to make sure people are serious about taking over a lease and not just kicking tires online,’’ he said.
Hall also points out that the leasing company must agree to transfer responsibility to a new lessee. Swapalease.com warns this is bad news for anyone with a spotty credit history.
“In a lease transfer situation, the person with less than great credit would not qualify and [therefore] not be permitted to take over a lease,’’ said Hall.
Leasing companies may also charge consumers transfer fees that could range from roughly $300 to $400.
Negotiating a buyout
Reed says it’s important for consumers to do their homework and find out if they have equity on the leased car that they can bargain with. If the car is worth more than the consumer owes on it, they have “positive equity.’’
Reed recommends using Edmunds’ Used Car Appraisal Tool to determine the car’s current market value. Meanwhile, the car’s residual value, or the price it’s projected to be worth at the end of the full lease term, should be in the leasing contract. To determine the equity, consumers should subtract the residual value from the car’s market value.
If the consumer has equity, they may be in a better position to negotiate a contract buyout from the car dealer.
“If you have equity at the end of your lease, you should know about it,’’ said Reed. “If you’re trying to get out halfway through the contract, it’s easier with positive equity.’’
If the consumer has positive equity, one option is to buy the car from the leasing company at market value and try to sell it at a profit. But Reed points out this can be complicated because the consumer must put up the money for the car, advertise the car, and successfully conclude the deal.
Another option would be to turn to a company like CarMax for assistance. Reed said CarMax may pay the leasing company the remainder of your balance and then turn around and sell the car.
“You can get out of [the lease] for nothing, or get money, depending on the current market value of the vehicle,’’ he said.
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