What happens if you break a car lease

By Sarah R
Modified on November 27, 2023
what happens if you break a car lease

Wondering what happens if you break a car lease? Leasing companies 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. 

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. 

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 exceed 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 fee 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 payments. You may find that it would be more economical for you just to follow through and finish the terms of your lease agreement. Make sure you’re also familiar with what happens when the terms of a loan are satisfied.

Fees Associated With Early Lease Termination 

Below are early termination fees common in most lease agreements. 

Early Termination Fee

An early termination fee is the most common charge 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 car lease early is not the best choice. Learn about some of the alternatives you may want to take advantage of instead of breaking a car lease early. 

Lease Transfer 

A lease transfer is something you may consider instead of ending a car lease early. 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 car lease. 

Get a New Lease

Instead of ending your car lease early, 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 car lease early. 

Supplement Income

If you are thinking about ending your car lease because you can no longer afford the payments, consider finding an alternative source of financing. You can get a part-time job, have a garage sale, or even get a convenient personal installment loan. Try to stay away from payday loans online same day as they can turn into a significant financial drain. 

Does Breaking a Car Lease Agreement Affect Your Credit?

Worried that ending your car lease early will negatively impact your credit score? Great news! You don’t have to worry about the specific action of ending a car lease early, 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. 


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