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Can you end a car lease early?

March 23, 2023

Can you end a car lease early?

If you're leasing a vehicle and want to end the lease early, you have to apply for early termination with your leasing provider. 

Whether you want to cut down costs, are struggling to make lease payments or no longer want the vehicle, you have car lease cancellation rights. However, lease agreements are designed not to be broken, so early termination comes with substantial penalties and fees.

In this guide, we discuss the process and cost of ending your car lease and common questions regarding early termination. We’ll also introduce car subscriptions - a better alternative to traditional leasing with no lengthy contracts to worry about.

Can you end a car lease agreement early?

‘Car lease’ is used as an umbrella term to encapsulate all leases for vehicles for both business and personal use. In this case, we are often referring to PCH (Personal Contract Hire) and PCP (Personal Contract Purchase) as car leasing.

A car lease agreement is a legally binding contract between you and the leasing company. It's normally a long-term contract lasting between 2 to 5 years. At the end of the agreed period, you can either trade it in for a new vehicle, buy it or simply return it. Most drivers choose to return the leased car, and if it's in good condition, the leasing company collects it for free. However, if there is any damage to the vehicle you will be looking at additional charges following the collection of the vehicle.

Furthermore, during the lease agreement period, your circumstances may change, and you may need to terminate your contract early. For example, you may face financial difficulties, which affect your ability to keep up with your lease payments. Similarly, you may have your eye on another vehicle and want to lease it. 

The reasons for wanting to terminate your car lease early are numerous, with some being legitimate, while others are simply personal. Some of the legitimate circumstances that may require early termination include:

  • Accidental death
  • Illness
  • Loss of licence for medical reasons
  • Involuntary bankruptcy
  • Expatriation or deportation

Finance providers usually lay out the terms and conditions of your lease contract in detail, including the requirements for early cancellation. It's essential to be fully aware of these details before signing, as some contracts don't allow early termination. 

While it's generally possible to end a car lease early, there may be terms and conditions that you need to understand in each individual case. This is why it's important to speak with your leasing provider first before agreeing to your vehicle lease. It will give you a unique insight into these details and the process and fees associated with ending a car lease early. 

Be sure to ask your provider specific questions about ending your car lease early and the restrictions in place. You don't want to sign a contract that makes it impossible or extremely costly to terminate a car lease early.

How much will it cost to end a car lease agreement early?

Whether or not you can end a car lease early, the fees associated vary from funder to funder.

In most cases, finance companies may ask you to pay all or some of the finance amount. This amount is calculated on a case-to-case basis by factoring in how far into the contract you are and the monthly payments. 

For example, if you are on a 24-month lease and cancel at 12 months, your funder may require you to make up the 12-month difference. So if you pay £150 a month, that's £1800. 

Alternatively, some providers may only ask for 50% of the remaining payments, which in this case is £900. Both amounts are quite high, especially if you can't afford your monthly lease payments.

For funders that deal with each case individually, they'll calculate a custom fee based on the mileage you've done and the number of months you have left. 

It's essential to note that the costs and charges to end a car lease agreement early are affected by various factors, including:

  • Time remaining on the contract
  • Monthly payments
  • Mileage on the vehicle
  • Vehicle condition

On top of this, most leasing companies charge an early termination fee. This fee varies between leasing providers, but the earlier you terminate your contract, the more expensive it will be.

There are also other additional early termination charges you should be aware of. For instance, you'll be charged if you've accrued excessive mileage or if the car is damaged. Other funders may also have the following additional charges:

  • Costs to get the car ready for sale: This penalty covers costs like cleaning the vehicle and fixing scratches.
  • Car transportation and storage: It will cost the leasing company money to store and transport the vehicle, and they may extend this bill to you.
  • Negative equity: Some harsh finance providers may charge you the difference between your lease amount and the residual value of the vehicle.

All these fees and penalties are in place to discourage you from ending your car lease early. While your early termination cost won't include all of the fees we've mentioned above, it will at least include an early termination fee and the remaining payments on your lease.

The early termination process

Each supplier will have their own early termination process which should be checked to ensure the terms and conditions are being followed. Typically, the early termination process will include the following steps:

  • Contact the leasing company and notify them you wish to terminate your contract early.
  • Your leasing company will then contact the funder to acquire the early termination settlement figures.
  • Once the leasing provider confirms these figures, you'll get an early termination quote detailing the fees and penalties you have to pay to end your lease.
  • If you're okay with the quote and want to proceed with the termination, you'll sign the agreement and return it within the stipulated time period. Most early termination quotes expire within 14 days of the invoice.
  • If you make any payments after the quote validity date, they'll still be processed, but the early termination quote will be recalculated. 
  • Once the leasing company receives and clears your payment, they will contact you to arrange the return of the vehicle.
  • Any damage to the vehicle or excess mileage will be invoiced separately after early termination.

How long the early termination process takes varies from case to case and is dependent on the finance provider. However, you can expect the process to last between two and four weeks. Bear this in mind when beginning the termination process.

Alternatives to early termination

It's no secret that ending a car lease early is expensive. This is why many people get concerned by the prospective charges of early contract termination. If the early termination fees and penalties are too much for you to settle, there are other options to consider. These include:

  1. Reduced monthly payments: If you can't afford your monthly lease payments due to personal circumstances such as losing a job, speak with your leasing provider to have them reduced. They may temporarily reduce the payments until you get back on your feet. Be sure to contact your leasing provider straight away to avoid being hit with missed or late charges. Most leasing companies will be happy to discuss new terms to help you manage the lease.
  2. Early termination insurance: If you want to avoid the fees and penalties associated with ending a car lease early, consider taking out early termination insurance. This will cover the costs of early termination in the circumstances outlined in your policy, ensuring you don't pay a dime. Be aware that your policy won't cover certain circumstances, such as claims relating to Covid-19, unemployment or any excess mileage charge. Although early termination insurance is an optional form of cover like GAP, it gives you peace of mind knowing you can terminate your lease early for free.
  3. Transfer the lease: Alternatively, you can choose to transfer your vehicle lease to another individual. They will carry on making the monthly lease payments, allowing you to exit the terms of your contract agreement. First, confirm whether transferring the lease is possible in your contract. 

If it is, you have to meet certain criteria to transfer your lease. For example, your car lease must have 12 months or longer remaining, and you must be in arrears to the funder, such as late/missed payment charges.

Does early termination affect your credit score?

Many people are often concerned that ending their car leases early can affect their credit scores. If you use voluntary termination to end a car lease early, it will be recorded in your credit file. This has little to no impact on your overall credit score, making it a better option than missed/late payments. Missed or late payments negatively affect your credit score and make it difficult to borrow money in the future.

On the other hand, frequently using voluntary termination can look bad on your credit. This is because lenders lose money with early termination and it showing up multiple times on your credit file isn't a good look. 

There's usually no record of why a lease agreement ended, and most car dealers poorly explain the reasons for early termination to the finance provider. Unfortunately, this may prompt the finance provider to make the process last as long as possible. To avoid this, write a letter clearly explaining your reasons for wanting to end the agreement.

Before applying for voluntary termination, keep up with your monthly lease payments. Any missed payments give the funder more rights, and your missed payments will show up in your credit file, impacting your score.

Car subscriptions: a better alternative to leasing

Looking to end your lease early for an alternative way to use a car? You might want to consider a car subscription from Drive Fuze.

Our car subscription service is all-inclusive, meaning your tax, fully-comprehensive insurance, servicing, maintenance and breakdown cover is all included in your fixed rolling monthly payment. There are no lengthy contracts, no hidden costs, no unexpected rise in your bills; just one easy monthly payment with no long-term commitment - giving you the freedom and flexibility a traditional lease can’t offer. 

Take a look at our range of cars and sign up for your car subscription today and experience the freedom of a Drive Fuze car subscription.