What happens if you break a lease on a car?

what happens if you break a car lease

Leasing agencies often charge fees or other penalties to customers who want to end their lease early. However, sometimes breaking a lease is the right choice. Here you’ll learn about car leases, how to break your lease early, and possible fees that may come with that decision. 

What Is a Car Lease?

Car leases are an agreement between a customer and a dealership or leasing company that allows the customer to use a vehicle without officially owning it completely. Car lease payments are typically much less than auto loan payments, making car leasing a common option for people who need a vehicle but are living on a lower budget. Car leasing is also popular amongst people with a less than perfect credit score, as buying a new car with bad credit is often difficult. In 2022 around 20% of all new cars in the United States were leased.1

When you lease a car, you sign an agreement with the car dealership or leasing company with details about how many miles you may drive the vehicle during the life of the car lease. Those who go over the allotted mileage limits often face extra fees or payments at the end of their vehicle lease. 

Quick Breakdown Of Vehicle Leases

AspectDetailsConsumer Consideration 
Lease Swap WebsitesWebsites that facilitate lease transfers.Useful for finding someone to take over your lease, potentially reducing or eliminating transfer fees.
Market Value of Leased CarCurrent value of the vehicle compared to the lease buyout price.If the car’s market value is higher than the buyout price, it might be financially beneficial to purchase and sell.
Lease Extension Options Possibility to extend the lease term.An extension can provide more time to make a decision or improve financial situation before terminating the lease.
Gap Insurance Implications Impact on gap insurance coverage when terminating a lease prematurely.Important to understand how early termination affects gap insurance, especially if the car is totaled or stolen.
Credit Score Requirements Credit score needed for someone else to take over the lease.Ensuring the new lessee has an adequate credit score is crucial for a successful transfer.
Early Lease Upgrade Programs Programs offered by some dealers or manufacturers for upgrading to a new vehicle before lease end.These programs can offer a way to get into a new car without traditional early termination fees.
Disposition Fee Fee charged at the end of the lease if you don’t purchase the car.Often overlooked, this fee applies when returning the car at lease end and should be factored into financial plans.
Wear and Tear Coverage Additional coverage options for wear and tear.Purchasing extra wear and tear protection can reduce costs if the car has significant wear at lease end.
Tax Implications Taxes associated with early termination or lease buyout.Understanding the tax consequences can prevent unexpected costs when terminating or buying out a lease.
Transfer Restrictions Specific restrictions or conditions imposed by leasing agencies on lease transfers.Some leases may have restrictions on transfers, affecting the feasibility of this option.
Disclaimer: The information provided in this table is intended for general informational purposes and may not apply to all leasing situations. Consumers are advised to consult with their leasing agency or a financial advisor for specific advice and to review their lease contract for detailed terms and conditions related to their individual circumstances.

Open-ended Car Lease vs. Closed-ended Car Lease 

There are two main types of car leases you may get; an open-ended car lease or a close-ended car lease. A closed-ended car lease is when the customer and the car dealer agree upon a certain degree of wear and tear a vehicle will endure during a car lease. It’s understandable that a vehicle’s value will naturally decrease as you drive and use it regularly. At the end of a closed-ended car lease, the customer will not have to pay any more after giving the vehicle back to the dealership. However, if there is excessive damage, major market value loss, or if the customer exceeds the allotted mileage limits, they may be responsible for paying out the difference. 

An open-ended car lease does not include the equity a vehicle may have in the future on the lease contract. Open-ended leases give the customer the opportunity to earn a refund at the end of their leasing contract if the vehicle is worth more than the lease company expects. Unfortunately, if the car is worth significantly less when the lease contract terms are over, the customer may be responsible for additional fees or payments. 

How To Get Out of a Car Lease Early

Think you may want to terminate your lease early? Before you end a car lease early, you may want to calculate the costs. There may be penalties to ending a lease early, such as an early termination charge and other expenses. If you think you may want to end your lease early, review your original leasing contract and look over the penalty fees that you would be responsible for. Then, before you contact your lease company and tell them you want to end your lease, calculate the costs of making your remaining monthly payments. You may find that it would be more economical for you just to follow through and finish the terms of your lease agreement.

Fees Associated With Early Lease Termination 

Below are early termination fees common in most lease agreements. 

Early Termination Fee

An early termination charge is the most common expense customers face when they want to close their car lease early. This type of fee can get quite expensive, especially if you plan on breaking your lease while the contract is still considered “new.” Leasing companies consider a “new” car lease as any lease that is within the first half of the terms. For example, if you had a car lease for four years, the lease would be considered “new” during the first two years. Early termination fees can end up costing hundreds of dollars or more! 

Negative Equity Fees 

Before returning your vehicle to the car dealership, a representative will look over the car and assess its equity. If there is a significant decline in equity, the leasing company will charge extra fees to pay for the loss. 

Liability Fees 

Leasing companies may still hold customers responsible for the remaining balance, even if they want to break their lease early. 

Car Storage Fees

If you break a lease early and are no longer using the vehicle, the dealership or leasing company will have to store the car in a safe place until they can lease it out again. Customers who break their car lease early may be responsible for these storage fees. Dealerships usually like to keep the vehicle inside a temperature-controlled area, so it is safe from rain, snow, or major temperature changes.

Dealer Fees

Besides storing the vehicle in a safe place, the dealership or leasing company will also have to do other things before they may lease out the car again. Cleaning, tune-up maintenance, or other touch-ups are all required steps before leasing out a vehicle to a customer. Customers who break their lease early are often responsible for covering these costs. 

Transfer Fee and Taxes

Depending on the needs of people in the area, businesses may have to transfer vehicles across city or even state lines. Suppose a dealership or leasing company needs to transfer your car to another location in order to lease it out to somebody else. In that case, you may be responsible for the transfer fees and any taxes if you end your lease agreement early. 

Why You May Need to Break a Car Lease Early

There are many reasons why someone may want to get out of a car lease early. If you no longer have a use for a vehicle, or cannot afford the expenses, sometimes early termination is the most logical option. Below is more information on why people may want to get out of a car lease before the full lease term is up. 


If you recently suffered an accident that resulted in a permanent disability, you may no longer have the ability to drive or use a vehicle. To get out of paying for a car they cannot use anymore, it is common for people dealing with a disability to try to get out of a lease early. 

Job Loss

Perhaps you lost your job and can’t pay bills. Sometimes unemployment benefits are just not enough to cover everyday expenses, including the costs that come with a car. If you lease a vehicle, you are responsible not only for making lease monthly payments but also for putting gas into the car and fixing it if it breaks down and costs are outside of the lease agreement warranty. If you are currently unemployed or laid off, you may find these expenses too challenging to keep up with, leading you towards getting out of your car lease early. 

Want a Different Vehicle 

Maybe you are currently leasing a small compact vehicle but want more room for family members, sporting equipment, or other items that take up a significant amount of space. If your lifestyle or needs have changed, you may want to end your current lease early so you may get another vehicle. 


If you have moved to a different area that no longer requires you to drive or commute regularly, you may want to get rid of your vehicle altogether. Those who move from the suburbs to a city often find that they no longer need a vehicle to run daily errands or to get to and from work. Furthermore, parking costs can get quite expensive in a crowded area like a city. It may be more convenient and economical for people who live in a big city to walk or bike instead of driving a car. 

Alternatives To Breaking a Car Lease

Sometimes breaking a vehicle lease early is not the best choice. Learn about some of the alternatives you may want to take advantage of instead of breaking a vehicle lease early. 

  • Lease Transfers: A lease transfer is something you may consider instead of ending a vehicle lease prematurely. With a lease transfer, you would place your current lease in someone else’s name, and that other party would gain access to the vehicle and be responsible for the lease monthly payment moving forward. A lease transfer is common in circumstances involving a divorce or the death of a spouse. 
  • Lease Buyout: If it is within your budget, you may be better off buying the vehicle you are leasing instead of ending the contract early. Then, you can either keep the vehicle or sell it and use the funds to pay for a new vehicle lease. 
  • Get a New Lease: Instead of ending your vehicle lease prematurely, try talking to your leasing company to see if you can roll your current lease over into a new one. That way, you can get a new vehicle without having to terminate your vehicle lease prematurely. This will work similarly to refinancing a car loan.
  • Supplement Income: If you are thinking about ending your vehicle lease because you can no longer afford the payments, consider finding an alternative source of financing. You can get a part-time job that pays well, have a garage sale, or even get a convenient personal loan. Try to stay away from payday loans, and title loans, as they can turn into a significant financial drain. 

Does Breaking a Car Lease Agreement Affect Your Credit?

Worried that ending your vehicle lease prematurely will negatively impact your credit score? Great news! You don’t have to worry about the specific action of ending a vehicle lease prematurely, causing your credit score to go down. However, if you fail to pay the required fees on time, then you may see a significant decline in your credit score. Payment history is the most important factor contributing to your credit score, so having late or delinquent payments on your credit file may result in a significant drop in your score. 

FAQ: Breaking Vehicle Leases

What is a lease transfer charge and when is it applicable?

A lease transfer fee is charged when you transfer your lease to another person. This fee covers administrative costs involved in transferring the lease contract to a new lessee.

Are there any specific conditions under the Federal Consumer Leasing Act regarding early lease termination?

The Federal Consumer Leasing Act outlines disclosures leasing companies must provide, but it doesn’t specifically govern early termination. However, it does mandate clear communication of any penalties or fees for terminating your lease prematurely.

How does early buyout differ from simply terminating a lease prematurely?

Early buyout involves purchasing the leased vehicle before the lease term ends, often at a predetermined price. This is different from terminating a lease, where you return the vehicle and pay any associated early termination fees.

What happens to the remaining lease payments if I terminate my lease prematurely?

When terminating a lease prematurely, you may still be responsible for the remaining lease payments. The exact amount depends on your lease contract and the policies of the leasing company.

Can I terminate my leased vehicle lease prematurely without penalties?

Terminating a lease prematurely usually involves penalties, but the specifics depend on your lease contract. Some leasing agencies may offer more flexible terms, but this is not a standard practice.

Are all leasing companies required to allow for early lease terminations?

Not all leasing companies permit early lease terminations. It’s important to review your lease contract or consult with your leasing agency to understand their specific policies.

What should I know about lease contracts when considering terminating my lease prematurely?

Lease contracts typically outline the terms for early termination, including any penalties or fees. Understanding these terms is crucial before deciding to terminate your lease prematurely.

Is there a difference in early termination fees for different types of leased vehicles?

Early termination fees can vary depending on the type of leased vehicle and the leasing company’s policies. Luxury vehicles, for example, might have higher termination fees compared to standard models.

Can I avoid early termination fees by transferring my lease to someone else?

Transferring your lease to another person can be an alternative to avoid early termination fees, but you might still be responsible for a lease transfer charge. Additionally, the new lessee must meet the leasing company’s credit and eligibility criteria.

What are the financial implications of returning a leased car early?

Returning a leased car early can lead to several financial implications, including early termination fees, remaining lease payments, and potential charges for excess wear and tear or mileage.

Conclusion With CreditNinja

In conclusion, breaking a car lease early is a decision that can come with several considerations and potential consequences. When contemplating early lease termination, it’s essential to be aware of the costs, including early termination fees, negative equity fees, liability fees, car storage fees, dealer fees, transfer fees, and taxes. These fees can add up, making it crucial to assess your financial situation and the reasons behind wanting to exit the lease. To learn more about car leases, car loans, how to have someone take over your car loan, and more, check out CreditNinja’s blogs.


  1. Which Car Brands Are Most Often Leased | Cartelligent
  2. 4 Tips to Get Out of a Car Lease | Upsolve
  3. What is Car Leasing | Credit Karma
Read More
average apr for personal loan
The average APR for a personal loan will depend largely on your credit score and the lender you choose to work with.  A personal loan is…
best credit building apps
The best credit-building apps give borrowers the tools they need to improve their credit and spending habits. If you have bad credit, you may be…
best budget apps
The 10 best apps for budgeting include Mint, PocketGuard, and others. However, you may ask, “How can I find the best free budgeting app?” The…
credit score needed for a construction loan
While there is no one credit score that is required for construction loan approval, lenders typically tend to favor applicants with higher scores and a…

Quick And Easy Personal Loans Up To $2500*