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Leasing a Car
First off, you should understand what a car lease consists of, along with the rules of most lease finance companies before we discuss what is the best way to break a car lease? Most car leases typically have lower monthly payments, but do require some money down like the first and last month payment and sometimes lease or acquisition fees, plus tax, title, and registration fees. After your initial down payment, however, the monthly nut is usually lower than if you purchased the vehicle and the term is lower, meaning once the lease is up, you can get into a new vehicle.
Many people are attracted to leasing versus purchasing because of the lower monthly payments. Although you most likely will have an amount due at lease signing, leasing companies often do run specials with zero down, but you have to watch for those. Leasing a car essentially works this way:
- You find a car you like that has a sales price of $25,000 and decide you want to lease instead of purchase.
- You lease the car based on the finance company’s two or three year lease program. The lease amount is based on the residual value. Residual values are determined monthly by lease companies and are what they consider the car will be worth at the end of the lease. Say the residual value of that $25,000 car you want to buy is $10,000. Your lease amount is the difference between the sales price and the residual value or $15,000.
- The leasing company will tell you what is included at lease signing along with mileage restrictions. Most lease companies have 25,000 to 40,000 miles for two and three year leases, depending upon the lease company. If you go over the allowed mileage, you pay a penalty at the end of your lease.
- At the end of the lease, most leasing companies will allow you to turn the vehicle in and walk away, finance the residual value and then own the vehicle, get into a new lease with a different vehicle and some, but not all lease companies will allow you to use the lease turn in as a down payment for purchasing a new vehicle in a traditional purchase contract.
Now that you have the general basics on car leasing, can you break that lease once you’ve signed the lease contract?
Image Credit: 2010 Ford Edge (Jean Scheid is a registered user of the Ford Media Room)
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Car Leasing Myths
Let’s start off with leasing myths first to find out the answer to the question what is the best way to break a car lease? First, if you search on the Internet for “best way to break a car lease," you’ll find a few companies like Swapalease and LeaseTrader. Along with these companies, you’ll find testimonials abundant from people who utilized these companies, loved the experience and were well satisfied.
Unfortunately, these lease assumption companies often can’t help you or can be deceiving on what they can and can’t do. All of these lease assumption companies charge fees to join so before you decide to use one, read your lease contract to find out if the leaser even allows you to do this. Most don’t so you might be stuck paying for a membership you can’t use.
Other deceptive practices lease assumption companies utilize is offering other leased vehicles on their websites that are no longer available or are not in the condition as described, so you may not be able to get the car you want or end up with a car that has damage. If you do utilize one of these companies, read your current lease first, ask as many questions as you can, and check with the Better Business Bureau to see if the company has any unresolved complaints.
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The Realities of Car Leasing
Now on to the realities of leasing a car. First off, all leasing finance companies are different and keep in mind that the leasing finance company IS not the manufacturer. For example, if you enter into a Ford lease, it is through Ford Credit which is a total different organization than Ford Motor Company. All leasing companies work this way, so if you’re unhappy with your lease or leasing terms, don’t blame the manufacturer.
To answer the question, what is the best way to break a car lease, unless your contract specifically states you can enter into a lease assumption, you really can’t break the car lease, but you do have some options.
- Walk Away – You can turn the lease back into the dealership who will in turn call the leasing company to repossess the vehicle. This is the same as a repossession of a financed vehicle, so it will damage your credit score and be listed as a repo.
- Refinancing Options – Some lease companies will allow you to go back to the dealership and turn the vehicle in as a refinance. This basically means you are using just a portion of the residual value and using that as a down payment on a new car in a traditional finance contract. Keep in mind that very few leasing companies will do this so ask upfront first before you sign the lease.
- Combine a Lease/Purchase – Not all, but some car leasing companies will allow you to roll your lease payments into a new car purchase. If you can do this in our $15,000 dollar scenario above, not only would you be paying the monthly nut on that lease, but also the monthly payment for the new car all in one traditional contract—meaning essentially a double payment.
- Pay the Penalties – Again, some but not all car leasing companies will allow you to return the vehicle if you pay all the penalties listed on the contract. These penalties can be hefty so make sure you know what they entail to determine if you have the cash.
- Loan Options – If you have good credit and some equity in your home and you are truly dissatisfied with the leased vehicle, you can opt to enter into a home equity line of credit and use those funds to pay off the lease early. You will still have a loan, however.
Finally, keep in mind that even if you have lemon laws in your state that cover car lease, those lemon laws won't extinguish that lease. If you are able to win a lemon law case, you will get into a new car, but your lease will remain the same and you must continue making your lease payments during the lemon law process.
Image Credit: 2011 Ford Fiesta (Jean Scheid is a registered user of the Ford Media Room)
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Why Leasing Is Attractive
Leasing a vehicle still remains popular because the leased vehicle is covered under the manufacturer’s warranty for the term of the lease, you can get into a new vehicle in two to three years with no commitment to the old vehicle, and if you own a company and lease a vehicle it can be a tax write off, but check with your tax professional on how this works.
In truth, however, answering the question, what is the best way to break a car lease is not to enter into one in the first place. If you do desire leasing versus buying and have always had a good experience, just make sure you understand the lease contract, all the penalties and fees that go with it, and all of the lease turn-in rules associated with your lease.