For unforeseen reasons (such as bankruptcy or redundancy), a small percentage of car lessees could find themselves unable to meet the contracted monthly payments, and will therefore wish to terminate their agreement early. Other lessees meanwhile may exceed the maximum mileage stated in the terms of their lease too early. In this situation it may make greater financial sense to give up the car prematurely than to continue using it and incur the related per-mile penalty fees.
Whatever the reason for wanting to end a lease early, this guide explains the options lessees can pursue, and what they should expect from each.
OPTION #1: Transfer the lease to another party
IMPORTANT NOTE: This is not an option open to all lessees - some dealerships/contracts forbid the transference of the lease to another party. Additionally, some dealerships/contracts may allow lease transference, but will ultimately hold the original lessee responsible for any outstanding payments and/or applicable penalty fees (for damage, or excessive mileage, for example). It is imperative lessees check the terms of their agreement before attempting to pursue this option.
Assuming the leased vehicle has not been stolen, or written-off in an accident, lessees have the option of transferring their agreement to another party. By transferring the lease, the new lessee will be responsible for the monthly payments and the current contract holder will not incur any early termination fees, or related credit score penalties.
The market for “second hand” leases is vast: providing access to convenient short-term agreements which would otherwise be unavailable to consumers. Another benefit for those who overtake a lease is that they will not face any off the up-front costs associated with leasing (for example: the first month's payment, a security deposit and/or a down payment).
Those who decide to pursue this option should compare the prices and services of a number of lease transfer companies to determine the best deal. Processing fees will be charged by such companies for advertising the lease, credit checking potential lessees, and to cover the costs of having the vehicle inspected and transported to the new lessee. Obviously, the car in question should be thoroughly cleaned, and in a decent condition, before it is shown to any parties that are considering taking on the lease - poorly maintained cars are very unlikely to hold interest!
Once a new lessee has been found, the transference process usually take two to three weeks to complete.
OPTION #2: Simply cease the agreement and accept the early termination penalty fee
Those not in a position to transfer their lease may have little choice but to accept the early termination fee. The total charge due will be dependent on the terms of the lease contract in question, and how much of the agreed lease period is outstanding. Generally speaking though, lessees that terminate early can expect to be liable to pay around 50% of the outstanding amount (so long as six months, or more, of the agreement remain).
Upon returning the vehicle to the dealership, lessees should ensure the car is clean and in good condition in order to avoid further penalty fees. It is not unheard of for dealerships to exaggerate problems in order to apply fees, in an attempt to lessen their financial loss from early termination. For this reason, lessees should notify the involved dealership regarding their struggle to meet payments ASAP - late or missed payments will not work in the soon-to-be-ex-lessee’s favour!
Vehicles acquired through hire purchase
Of course, not everyone chooses the leasing route to acquire a vehicle - some utilise a hire purchase agreement instead. The ‘Halves and Thirds’ rule - part of the 1995 Consumer Credit Act - applies to the premature termination of hire purchase agreements for cars:
The ‘Halves’ rule
Those who have paid at least one half* of the total outlayed by their contract have the right to ‘Voluntarily Terminate’ (VT) the agreement at any time. This means the involved vehicle can simply be returned to the creditor without the contractee facing any further charges. It should be noted however, that penalties for excess mileage and unfair wear and tear will still apply to voluntarily terminated vehicles.
The ‘Thirds’ rule
Those who have paid a third* of the total repayable amount cannot not face vehicle repossession, unless a court order for this has been arranged by the involved finance company. The exception to this is Scottish Law, under which a court order is ALWAYS required for repossession.
Contractees can however, ‘voluntarily surrender’ the vehicle at any time, regardless of the amount paid. Whether the individual responsible for the hire purchase decides to surrender the vehicle or let it be repossessed, the negative credit score repercussions will fundamentally be the same.
*These totals nearly always include the final balloon fee.
Option #3: Lease another car from the same dealership to see the current lease - and related fees - negated
Those looking to end their current contract but still requiring the convenience of a leased car should consider hiring another with the same dealership. This move may see the dealership agree to reduce any outstanding debt and applicable penalty fees. However, it should be noted that those ending their agreement significantly early may be denied a further lease completely, or will see a large percentage (if not all) of their debt covertly spread across the monthly payments of the new contract.
Ending a lease agreement prematurely will negatively impact the credit score of the lessee, but leasing another car with the same dealership often sees no credit penalty applied. Re-leasing with the same dealership then, may seem the only feasible option for those seeking a subsequent lease after ending their current one. Lessees should however, always seek the advice of an impartial car leasing specialist to determine their options.
Still confused about lease termination or the ‘Halves and Thirds’ rule? Contact leaseyournextcar.com today for expert, no obligation advice.
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