How to Get Out of Your Car Lease the Cheap and Easy Way

People who are experts when it comes to leasing cars know a secret many car leasing rookies don't: It may be possible to get out of a lease contract early, and do so without getting hit with a ton of penalties. We'll talk about two methods here. One requires some luck; the other doesn't.

A Lease Car With Equity

The stars aligned for one of our Edmunds co-workers and she was able to exit a lease early and even realize some cash. Here's how she did it:

Kathleen was about two years into a three-year lease of a 2015 Mazda CX-5. Her crossover SUV was in great shape and had low miles. But before her lease was up, she got the bug to get something new: a 2018 Mazda CX-5, which has features her 2015 didn't, primarily adaptive LED headlights and rear cross-traffic alerts.

Because Kathleen's leased 2015 CX-5 was low on miles, and crossover SUVs are hot right now, she suspected she might have some equity in the vehicle. She appraised it on Edmunds and compared the appraised value to her residual. Her suspicion was correct: Her residual, or buyout amount, was less than the appraised actual cash value of her car. In other words, Kathleen's 2015 CX-5 had equity.

Kathleen traded in her 2015 CX-5 for the new 2018 and used the equity as a down payment. That allowed her to drive off in her new car with a low payment and no money out of her pocket. It's no secret that staying within the same brand often makes trading up easier. In Kathleen's case, the brand wouldn't have mattered. Her equity could have been applied to any other carmaker.

To recap, Kathleen was able to get out of her lease early because all the stars aligned: She had a desirable vehicle in a segment that is hot. She also had low miles, which boosted her car's value. Finally, the residual amount was low.

Not everyone will find it quite as easy to get out of a lease early this way. For example, it is unlikely a person in the first year or so of a lease will have any equity. Or a leased vehicle that has poor gas mileage may not be very "tradable" when gas prices spike. Still, there are other ways to exit a lease early that don't necessarily require a fantastic residual or cosmic good luck.

All About Lease Trading

One popular option for people who want to exit a lease early is to use a lease-trading website.

The concept is simple: "Sellers" — leaseholders, also known as lessees — list their unwanted vehicle and payment details online. "Buyers" — people who want to assume a lease — search for listings that match their needs. The websites connect the two parties and facilitate the process of legally transferring the lease. Swapalease and LeaseTrader.com are the leaders in online lease assumption.

While neither company is a household name, both have been around for roughly 20 years facilitating thousands of lease exchanges annually.

Why Would Someone Want My Car Lease?

Although you may no longer want your vehicle, your current lease might be attractive to other people in the market for a car. Here are some examples of why someone may want to take over your lease:  

• They might need a car as a short-term vehicle and don't want the commitment of a longer lease term. If you've only got 15 months left on your lease, for example, that's all they would be signing up for.
• They might be trying to avoid a hefty down payment.
• A life situation has changed, and the shopper needs an extra car or a different type of vehicle.
• Some people like lease swapping because they can drive a different car every year or two.
• A new leaseholder might want to buy the car at the end of the lease for a preset price.
• The deal you've got on your car is better than what is currently available on a new version of the same car.

Even if your current monthly lease payments are higher than average for your vehicle, you can make your car an attractive candidate for a new owner by offering an upfront cash incentive that will effectively lower the payment for the new owner. While offering a cash incentive to a stranger to offload a car may not sound ideal, it may be a better move in the long run than dealing with years of high payments or being substantially upside down or underwater.

What Vehicles Swap the Fastest?

According to Scot Hall, executive vice president of Swapalease, the vehicles that are picked up the fastest aren't always the offers with the lowest payments. Sometimes it is the best "deal" that wins the race, even if the payment isn't necessarily cheap.

"Think of a luxury vehicle that would normally carry a $900 or $1,000 payment. If somebody offers one for a swap with a $650 payment, that's a great deal for the next buyer," he said. "Those types of deals go quickly regardless of payment range."

What's the Cost?

Of course, these lease sites charge a fee. Additionally, leasing companies may charge a fee to run an applicant's credit and to transfer the lease. The person assuming the lease bears the bulk of the costs. Still, these fees will often be less than a standard down payment.

One shopper found a large SUV with 19,000 miles and 19 months left on the lease for only $322 per month. It cost him a total of about $750 to assume ownership of the car, which was located just three hours away from him. Somebody else had already made the substantial down payment, and his commitment to the car was a lot shorter than if he'd done a new lease.

Another shopper had only five months into a three-year lease on a Chevy Tahoe when her circumstances suddenly changed, and she needed to get out of her lease. She tried to trade in the vehicle but would have had to pay $10,000-$15,000 to terminate the lease. She discovered LeaseTrader.com and within days found someone to take over her $550 monthly payments. The whole transaction cost her $250.

Can Everyone Swap Leases?

According to Hall, it is possible to transfer about 80 percent of leases with no strings attached. But even after a person transfers the lease, approximately 20 percent of leasing companies require the original leaseholder to retain some "post-transfer liability" for the vehicle. This means that the name of the person who originated the lease remains on the contract and the original leaseholder can be held financially responsible for unpaid balances. Such a liability could result from excess mileage charges or lease-end fees.

In these cases, the person who signed the original lease is essentially a co-signer on a loan, Hall said. If the second person defaults, the bank will try to recover the money from anyone else named on the contract.

The easiest way to see if your lease can be transferred is by reading the disclosures on your lease agreement. "Transfer of equity" is contract jargon that essentially says you'll still be financially responsible if you transfer a lease to somebody and the new lessor fails to pay. If your lease allows for a "full lease assumption," you can transfer your lease to a new user and wash your hands of all responsibility. 

A small percentage of leasing companies don't permit transfers at all. If you think you might want to transfer your lease down the line, find out if the bank that's handling your lease will allow you to do so.

Help With Transfers

Lease-trading sites will help you with many aspects of the lease transfer, such as vehicle inspections, vehicle history reports, links to long-distance auto shippers and credit qualification. (As a rule, the person looking to assume the lease will need to have pretty good credit.)

However, transferring a lease contract is a legal procedure and, as with buying a new car, there's no turning back once the ink is dry. So it's important to check the main requirements of the lease.

Checklist for Lease Assumptions

If you're thinking about transferring your own lease, these are some questions to consider before you do:

• Does your current lease company allow transfers?
• Has the lease-trading company checked to make sure the person who wants to assume the lease will qualify?
• Are you willing to retain some responsibility after the transfer?

If you are interested in assuming someone else's lease, we suggest you ask yourself these questions:

• Have you carefully read and understood the original lease agreement, including all potential fees and charges?
• Will the remaining lease period extend past the vehicle warranty period and leave the vehicle out of warranty? And if so, are you OK with that?
• Can you easily get the car inspected by a mechanic? Lease-trading companies will do this for an extra fee or provide a mobile inspector if the car is out of your area. It is a good idea to check out the car. The leasing company could hold you responsible for damage, even if it occurred before you assumed the lease.
• Can you lease a new car for the same price as the car you're considering on a lease-trading site? With the lease deals offered these days, it is sometimes possible to get a better deal with a new car.

A Win for Consumers and Automakers

While automakers' finance companies were initially resistant to the idea of their customers' leases changing hands, they've now come on board, according to Sergio Stiberman, CEO of LeaseTrader.com. Letting folks transfer their leases makes particularly good sense for high-end carmakers such as Mercedes-Benz and BMW, which lease out a high percentage of their new cars.

"Companies like BMW realize that they can hold onto these customers by letting people get out of their lease," Stiberman said. "They get a brand-new customer, and they've created a new relationship with the older customer." As a result, Stiberman said, "You're getting people who wouldn't normally lease a vehicle excited about leasing again."

An Automotive Annulment

Signing a car lease contract can feel a little like getting married: If you suddenly decide you want out, there is a fear it could cost you big money in early termination fees and penalties.

If the car you're leasing doesn't have equity and you can't pull off the leasing switch our colleague was able to, online lease trading can be a good option. It offers a greater measure of freedom to leaseholders than they've had in the past. A lease contract that permits vehicle transfers is a bit like an automotive prenup. It's easier to take the leasing plunge knowing that if you want out, it doesn't have to be a painful parting.