A car lease is a binding legal agreement, but it is not as permanent as one might think.
In fact, there are several ways to end a car lease early if you can no longer make regular payments or if you’ve had a change of heart about your new ride.
Here is the lowdown on how to get out of a car lease in Canada.
How to Get Out of a Car Lease in Canada?
Before we get into the best way to get out of a car lease, keep in mind that you should carefully consider the pros and cons of each of the options presented below and make a decision based on your individual circumstances and financial situation.
Transfer the Lease
Essentially, a lease transfer is when you find someone else to take over your payments for the remainder of the lease term. The upside is that this method is relatively simple and will have little to no financial impact on you. It will not affect your credit score either.
Even more good news: For a small fee you could list your car on sites like Lease Busters or Boombo.ca that will match you with an interested party in no time. Provided negotiations run smoothly, you could be out of your lease in just a week.
Keep in mind that some leasing companies impose restrictions and fees on lease transfers, so carefully read your agreement or contact to the company directly for more information.
Related article: How Does Dealer Financing Work?
If you want to end a car lease early but keep your vehicle, you can opt for a lease buyout. Basically, a lease buyout in Canada means that you’ll pay the remainder of what you owe to the leasing company, plus any additional fees, such as early termination and depreciation costs.
The biggest pro when buying out a car lease in Canada is that you get to keep the vehicle. On the downside, you will need to come up with a large upfront payment to cover all the costs. You could get a car loan to finance the buyout, however, this could end up costing you more than payments on the lease itself.
Basically, this is an option worth considering if you want to get out of a lease fast and if you’ve put a larger down payment for the car (which means you will have a lower outstanding balance on your lease).
Trade in the Leased Car for a New Lease
If you’re having second thoughts about the car you bought you might want to consider turning in a leased car early for another lease. This is a simple procedure—all you need to do is ask the leasing company if they will accept the trade-in.
There are some major drawbacks, though. For one, all the remaining payments, fees and charges will be transferred to your new lease, so you will be stuck with higher payments. Secondly, you might have to pay for the difference in cost if the old car is worth less than what you owe on the lease.
In other words, this is not an option for people getting out of car leases due to financial issues as this method will cost you more in the long run. It is, however, suited for drivers who cannot pay the price of a new car upfront and would like to spread out lease payments over a certain period of time.
Talk to the Leasing Company
You could be experiencing financial difficulties for a certain period of time. If so, you could ask the leasing company for some leeway on your payments—they could suspend payments for some time or reduce your monthly instalments until you get back on your feet.
Make no mistake, you will still pay the remaining amount due on the agreement, but you will avoid additional penalties and costs.
Car Lease Termination
This is one of the costliest options to get out of a lease early and it is reserved for drivers who cannot make any other method work.
When you terminate a car lease, you pay out the amount owed, including costs, penalties and a hefty termination fee. You will not be able to keep the car and what’s more, if you can’t make the remaining payments due on the lease, your credit score will also take a hit. Actually, getting out of the lease early is about the only thing you can get out of this situation.
In this case, it might be better to stick with the lease until it expires —you will still have to make regular payments, but you can keep the car and avoid heavy penalties.
Return Your Car
Supposing you have no finances to cover the rest of the lease?
Then you need to inform the leasing company that you can’t keep making payments and return the car. You will be responsible for paying depreciation and early termination charges and you will lose the vehicle. On top of that, your credit score will be negatively affected—according to credit reporting agency Equifax, not paying bills on time is one of the biggest factors impacting your credit rating.
Even if the leasing company manages to resell the car, you will still need to pay the relevant charges and penalties.
All in all, returning a leased car early should be considered as an absolute last resort.
Note: There are finance protection plans available that can help you return the car without paying penalties and fines. They will also ensure your credit score is not affected. However, you need to have one in place before you return the car to the leasing company.
Why Should You Get Out of Your Car Lease?
These are some of the most common reasons why a driver might want to get out of a car lease before it ends.
- Tight budget. If your financial situation has changed since you signed a lease agreement and you can no longer sustain your monthly payments, it might be wise to cancel the lease altogether and put your remaining funds towards other priorities.
- Interested in a new car. You might not be happy with the car you have. If this is the case you can trade in your vehicle for a new lease or transfer the lease to someone else, which will free up your finances and allow you to buy a more expensive model or even an eco-friendly vehicle.
- You no longer need a car. If you’ve recently found a work-from-home job, are planning on using public transportation more, or have moved out of the country, you may not have any need for your car anymore.
When you return a leased car early, you’ll need to pay the difference between the balance remaining on the lease, called the lease payoff amount, and the amount credited to the vehicle, i.e. the value, plus any charges set by the leasing company for ending the contract early
Yes, there are some ways you can get out of a car lease before it runs out. The best and easiest option is to find someone else to buy the lease from you. Known as a lease takeover, this is the only option which will not cost you anything.
If you no longer want to use your leased car you can either sell the lease to someone else or trade it in with the leasing company. When it comes to how to get out of a car lease in Canada, the first option is much easier and cheaper, but you may not be able to find someone willing to buy the lease before it runs out.
It depends on the terms of your lease, the value of the vehicle, and the early termination fee you’ll have to pay (known to range between $200-$500). Before signing a lease agreement, ensure you understand the specifics to avoid penalties if you choose to end the lease early.