Car leasing is a pretty simple game. You pick the car you want, pay an initial sum and then a series of fixed monthly payments for however long you agreed to take the lease. At the end of the lease, you give the car back. That simplicity is one of the biggest perks of leasing, but what if you want out before your lease term is up?
The good news is that you can get out of a lease early. The bad news is you’ll probably have to pay a chunky fee to do so, but there are alternative routes that can take the edge off often expensive lease termination fees.
Most leases last two to four years – a reasonable amount of time for circumstances to change – so it’s good to know what options are at your disposal should you ever need them. In this guide, we’ll look at all the choices available to you if you’re considering ending a car lease early in the UK.
What are my options for ending a car lease early?
Early lease termination
If you want to get out of the lease completely before your agreed term is up, you’ll need to look at early lease termination.
Early car lease termination in the UK can often carry a hefty price tag. Many finance providers set their early termination fees at 50% of the remaining payments on the contract. For example, if you’re 18 months into a 36-month lease paying £200 a month, you’d need to pay £1,800 (50% of the remaining £3,600 to pay) to end the lease.
Some providers may require more than this – even the full amount if you’re unlucky. Some may ask for less than 50% and calculate the fee on a case-by-case basis. There may be additional fees to consider, too, like a return fee and storage costs.
All of this will be outlined in your lease agreement, so make sure you’re up to speed with all potential end-of-lease penalties the day you sign up.
Lease transfers
In some instances, you may be able to transfer the lease to someone else. Doing so would eliminate the majority of the early termination fees you’d pay to exit the lease otherwise, so it could be a bit of a lifesaver if you can do it.
Many lease providers don’t accept lease transfers at all. Others have terms and conditions – for example, a minimum requirement of 12 months left on the lease – that must be met to facilitate a transfer. There are also logistical hurdles to consider, like the transferee needing to pass a credit check.
There will be costs attached for transferring the vehicle, but these are typically administrative and won’t be anything close to the figures attached to breaking a car lease completely. So, if you want out of the lease and you have someone who’d be interested in taking it from you, it’s worth looking into.
Early trade-in
If you’re interested in getting another lease with the same provider, there’s no harm in asking the question about ending the lease early and getting a new deal. ‘Trading in’ a lease is a bit of a misnomer as you don’t own the car, nor have you built any equity in it, so you don’t actually have any financial leverage to play with.
In reality, to successfully ‘trade-in’ your lease, you’d need to conduct a lease buyout where you purchase the lease vehicle from the company and then use its value against the cost of a new lease. That, or your provider sees the value in taking the car back early to sell it rather than charging you an early termination fee. Or perhaps your provider values your commitment to a new lease enough to forego remaining costs.
Regardless, if it is an option, it’ll save you the penalty charges.
What costs are involved in early termination?
Penalties and fees
The main car lease penalties and fees in the UK market are:
- Early termination fees: typically 50% of the remaining cost of the lease, but can be more or less depending on the provider.
- Administrative costs: additional costs on early termination might include a return charge or storage costs. If you’re looking at a lease transfer or early trade-in, you should expect some handling fees, too.
- Excess mileage costs: if you’ve exceeded your agreed mileage, you’ll have to pay excess mileage charges as laid out in your agreement (typically a few pence per mile). In the case of an early termination, mileage will be prorated down to the length of the contract before termination. For example, if you’d agreed to 10,000 miles per year on a 48-month contract (40,000 miles total) but terminated the deal after 24 months, excess mileage would be charged on anything over 20,000 miles.
- Wear and tear: your lease vehicle will be subject to the wear and tear guidelines in your agreement. Therefore, you’ll need to pay the associated charges for any wear and tear considered beyond ‘fair’.
Is it worth it?
This is the big question you need to ask yourself when considering ending a lease early. Doing so has to be cost-effective but also manageable when all fees are considered.
Your checklist ahead of a decision should be:
- Be fully up to speed with all terms and conditions relating to early termination in your lease agreement. Calculate every charge and come up with the total cost of cancelling your lease.
- Weigh up the total cost of cancellation versus how much you’ll save. If your early termination fees are 50% of the remaining cost, your total saving is obvious. However, your termination fee may be the full amount remaining, or a fixed fee that’s actually higher than the remaining amount due.
- Assess how viable it is for you to pay the early termination charges to settle the lease, which may be required in a lump sum. Likewise, if your total cost saving isn’t that great, consider whether it would make more financial/practical sense to continue running the car instead.
How to minimise costs when ending a lease early
Negotiate with the leasing company
If you want to end your lease, you’ll need to call your leasing provider to discuss cancelling the remaining finance. Explain your circumstances fully and be open with why you’re looking to end the contract, particularly if you’re facing financial hardship.
Your lease provider will then speak to the finance provider to negotiate best terms. They’ll come back to you with the available options, from which you can make a decision about what to do next.
If you have expressed concern about your finances, you may receive some leniency in terms – for example, a reduced cancellation fee or revised contract that extends the length of your deal to lower your monthly costs to a manageable level.
Swap or transfer the lease
If your leasing provider allows lease transfer – and you can find someone to transfer the lease to – you’ll be able to save the majority of the penalty charges that come with an outright termination of the contract.
As for how you find a willing transferee, there are plenty of lease transfer services out there that help connect those looking to get out of a lease with those willing to take one on. It’s important you find a reputable service provider, and you will have to pay a fee, but this is the most realistic route for finding a transfer and saving yourself from those early termination fees.
Can I avoid early termination fees?
Check your lease terms
Make sure to review your lease agreement for any clauses relating to early termination. There may be potential exemptions to consider.
Early termination insurance
Early termination insurance is a thing. You’ll often find it available from GAP insurance providers. Obviously, it’s an additional cost to consider, but one that could pay dividends if you think there could be a scenario where you’d need to end your lease early.
Lease end buyout
Earlier, we mentioned the prospect of a lease-end buyout (purchasing the vehicle) to gain early trade-in value. Strictly speaking, a lease is a lease, meaning there’s no purchase option at the end of a deal, but providers are open to buyouts in certain instances.
Taking on a lease-end buyout to avoid early termination costs should be carefully calculated. You might find it presents better value, based on your circumstances, to stick with the cancellation fees.
What happens after ending the lease?
Leasing a new car
Regardless of how you’ve ended your lease, whether it’s by paying a termination fee or through transfer/buyout, your lease company will happily provide you with a new lease.
Before you jump into a new deal, however, think about why you terminated the last one. If it was a cost-based decision, carefully consider your finances going into a new deal. You might want to look at a bargain special offer or try a used car lease for more manageable monthly payments.
Does terminating a lease impact my credit score?
It can do, especially if you were struggling to make your monthly payments before termination was confirmed.
If you do find yourself in a position where you’re struggling to meet your monthly payment obligations, always get in touch with your lease provider. At Hippo, we always do our best to work with customers who find themselves in financial difficulty to figure out a solution that restricts any damage to their credit score as best as possible.
Find the right lease with Hippo
Getting through a tough financial spot with your lease starts with finding an affordable package in the first place. We pride ourselves on being able to find a cost-effective deal for everyone, no matter their financial circumstances.
Take a look at our full car leasing range today. We’ve got great bad credit and no deposit options – and if you want to talk through what might work best for you, we’re only a phone call away.