Canceling your car lease is possible, but it’s tricky. In most instances, ending your lease early will require you to pay out the balance of your lease along with any fees, taxes, and other expenses. You’ll also have to cancel or update your car insurance (and canceling car insurance before the policy term is over can come with its own fees).
That said, ending your car lease early is always better than defaulting on your lease. It may be pricey, but if you can’t afford to make your payments, there are ways to end your car lease early.
Ending your lease early will usually require you to pay out the rest of the lease (along with any fees, taxes, and other expenses).
There are a few ways to end your lease early, including early lease termination, lease transfer, lease buyout, and selling your car to a dealer.
If you aren’t able to arrange a lease buyout or a lease transfer, making your monthly payments is the only way to avoid defaulting on your car lease agreement.
Once a lease is in default, your lender can repossess your car and report your default to the credit bureaus, lowering your credit score.
Can you cancel a car lease?
Yes, you can cancel a car lease, but it can be a difficult and expensive process. The best and most affordable option for most people is to pay through the end of your car lease, but sometimes things change.
Maybe you had a baby and that two-seater convertible just doesn’t work for your lifestyle any more, or perhaps your household income changed and you just can’t afford to make your monthly payments. Whatever the reason, it is sometimes possible to cancel your car lease, and there are a few ways to do it.
Ways to end your car lease early:
If you can no longer afford your car lease payments (or you just want out), there are a few ways to end your car lease early.
1. Early lease termination
Your lease contract may include the option of early termination, which means you would be released from any remaining payments on your vehicle. It also means you have to return the car and pay any balance due, including fees and penalties, which is often referred to as an early termination charge.
If you are considering ending your car lease early, you can call your leasing company and ask for the exact amount you would be expected to pay if you terminate. Be prepared to pay off the balance of your lease, which could be thousands of dollars, along with any past-due payments and other charges left on the car.
2. Lease transfer
If you don’t want to be forced to pay off the balance of your lease, you may be able to transfer it to someone else. Whether or not this is an option for you depends on if it is permitted in your lease, if it is legal in your state, and if the person taking over your lease meets the lessor’s requirements.
Although a lease transfer can save you from being forced to pay the balance of your lease, you may still have to pay a lease transfer fee (or other costs). Transferring a lease may not always be cheaper than paying off the balance of your lease.
If you need to find someone to transfer your lease to, there are services available that can connect you to someone who wants to take over a lease. Be careful, though — if the person who takes over your lease doesn’t make their payments, you could still be held responsible for the lease.
3. Lease buyout
In some cases, your best option may be to buy out your lease early and take ownership of your vehicle outright. While you always have the option of buying your car outright at the end of your lease period, you may also have the option to buy out your lease before it is over. There will still be fees to pay, but buying out your car lease and then selling your car yourself could potentially be the most affordable choice.
This could be an especially good move if you took out a car lease before the value of your car increased. For example, the car market in 2021 and 2022 changed dramatically in the wake of the COVID pandemic, driving the value of used cars through the roof. If you took out a car lease in 2019 and you want out of your lease, buying out your lease and selling your car now could be a smart financial decision.
The opposite is also true. Someone who took out a car lease in 2021 or 2022 could find themselves in a place where the value of their car drops dramatically if the market returns to pre-pandemic levels. If this happens, you could be stuck paying more on your lease than your car is worth.
Rolling your lease over into your new lease
You can also choose to roll over your current lease into a new lease, adding the balance to your new loan. Think this option through carefully, though, because this will likely increase your monthly payments and leave you upside down on your new lease.
4. Sell your car to the dealer
If you don’t want to sign a new lease, you could potentially sell your car to a dealer. You will get the best deal by selling to a dealership that specializes in your specific type of car (selling your Toyota Corolla to a Toyota dealership, etc.) but any dealership can purchase your leased vehicle.
In this situation, the dealership takes over your lease and pays it off in exchange for having a new car to sell, but you will see the cost of paying off your lease reflected in the price of the new car you are buying.
This is an especially good option if your vehicle is worth more than the balance of the lease. Many dealerships accept leased vehicles as trade-ins for new car purchases, especially when they need more used cars to sell.
Until your lease is over, keep making your payments
If you aren’t able to arrange a lease buyout or a lease transfer, making your monthly lease payments is the only way to avoid defaulting on your car lease agreement. If you know you aren’t going to be able to make your payments, reach out to your lessor to see if they can arrange a payment plan or a grace period to help you avoid going into default.
Do I need gap insurance for my leased car?
Yes, if you have a leased car you need gap insurance. Gap coverage pays for the difference between the value of your car and the amount due on your lease if your car is stolen or totaled in an accident.
Your lessor likely required you to add gap insurance to your car insurance policy to make sure you’re able to pay off your car lease, so if you have a leased car the odds are good that gap insurance is already included in your car insurance.
What happens if I default on my car lease?
If you don’t make your monthly payments, you’ll default on your car lease. Once a lease is in default, there are two primary repercussions: your lessor can repossess your car and report your default to the credit bureaus, lowering your credit score.
What happens when a leased car is repossessed?
Repossession doesn’t look like it did 20 or 30 years ago. Modern cars come with a variety of electronic and computer parts, which means your lessor can simply shut down your car with a starter interrupt device (SID) before officially repossessing the vehicle, preventing you from moving or hiding it. If this happens, your car won’t start and a tow truck will likely be dispatched by the lessor to come pick up the vehicle.
No matter how the lessor chooses to repossess a car, they have certain rules they have to follow. The agents sent to repossess a car are not allowed to use force to gain possession of it. For example, they can’t forcibly remove a driver or go into a closed garage to get the car back.
Whether or not the car gets repossessed, if you default on your lease your lessor will report you to credit bureaus as delinquent, lowering your credit score and making it harder to get a lease or a loan in the future.
Frequently asked questions
Does canceling your lease hurt your credit?
Like any other recurring payment, paying (or not paying) your car lease every month will impact your credit, and defaulting on your car lease will have a significant negative effect on your credit score. If you are able to transfer your lease you can likely avoid hurting your credit score, but you'll need to check with the car dealership and read your contract carefully to see exactly what happens when you cancel your lease.
How long do you have to change your mind after leasing a car?
Generally speaking, a car lease is final as soon as you sign the paperwork. While some purchases allow a cooling off period where you can return the item for a full refund, a car lease is not one of them. It is possible that your car dealership will cancel your contract if you change your mind within a day or two of signing the lease if they haven't sent the forms to the bank yet, but don't count on it.
How much is an early termination fee for a car lease?
Unless your contract says otherwise, there is no fee to terminate your lease before it ends, but you will likely be expected to make any remaining payments on your lease. You may also be responsible for other costs, like detailing the car and making any necessary repairs to get it ready to be sold, so review your contract carefully so you know what expenses to expect.