How To Get Out Of A Car Lease

A car lease agreement often lasts from 2-4 years, meaning unforeseen circumstances could result in you not being able to make the payments. Or you maybe the vehicle you’re currently leasing doesn’t do what you need it to, and you’re looking to change it.

Whatever your reason may be, in this guide we run through everything you need to know about getting out of a vehicle lease.

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Will I be charged for ending my car lease?

ending lease deal

Unfortunately, the short answer is yes, you will face a charge from the finance provider for ending a lease agreement early. This is what’s known as an ‘early termination fee’ and the exact figure will vary depending on the funder and other factors relating to your deal, including the length of the contract, mileage allowance and any outstanding rentals.

As a general guide, some funders will charge 50% of your outstanding monthly payments for you to get out of the lease. This amount will be a lump sum too, so you will need to have some money set aside in order to pursue this option.

What is early termination insurance?

If you don’t want to be charged for ending your car lease agreement early, you can choose to take out an insurance policy that covers the cost of ending it.

Finance providers won’t require you to have early termination insurance before you can lease or finance a car. It’s an optional form of cover, like GAP insurance.

At a glance summary, early termination is available in the following circumstances:

  • Accidental death
  • Sickness
  • Loss of licence (medical reasons)
  • Non-voluntary bankruptcy
  • Deportation/expatriation

However, you should be aware that it doesn’t cover:

  • Claims relating to Covid-19
  • Redundancy/unemployment
  • Claims made within the first 90 days of the policy starting
  • Any excess mileage charge or reconditioning/repair costs
  • Any arrears in your finance payments
  • Any reduction of value of the vehicle following damage repair or contract mileage being exceeded

Is an early termination insurance policy right for me?

Most car leasing and finance agreements last between 2-5 years, in which time a lot can change with regards to your personal circumstances.

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For example, there’s a chance that you could fall ill for an extended period during your agreement and have to take statutory sick pay. In this instance, you may not be able to afford the monthly payments for your car, and an early termination policy would allow you to cancel your agreement without paying hefty early termination fees.

Before you take out an early termination policy, it’s important to remember:

  1. Your car is insured by a main insurance policy (i.e. fully comprehensive insurance)
  2. The vehicle is maintained in accordance with the manufacturers’ service schedule
  3. Your main residence is in the UK
  4. You hold a full driving licence issued by the UK or a country which is a valid party to the European Economic Area
  5. The early termination policy is purchased within 31 days of the commencement date of your finance agreement

3 steps to getting out of a car lease

If you’ve decided that you want to end your lease agreement early, there are five steps you’ll need to follow to ensure the right people are notified and all the outstanding finance on your deal is settled.

1. Contact the leasing company or provider

man on phone

It’s very important that you let the company who have leased you the vehicle know of your decision to pursue early termination.

No-one can do this on your behalf, as the provider will only deal with the person whose name the finance is under. So, it’s advised that you call them at the earliest opportunity so that they can verify your identity easily, especially as email requests can take a few days to go through.

Remember: The provider will most likely ask for the registration number of the car, so be sure to have this to hand.

Once you’ve notified the leasing company of your decision, they will then contact the finance provider, who will then calculate a settlement figure. This process can take around three working days.

2. Confirm early termination fee

The company who leased you the car will send you the quote for an early settlement once they’ve received it. This can be through an email or post, depending on your preferences.

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Unfortunately, the price is unnegotiable, meaning you can agree to it or see out the remainder of your contract for the original fixed monthly rentals.

Remember: Early termination quotations tend to have an expiry date of 14 days from the date you receive the invoice. Payments received afterwards will be recalculated and most likely additional rental charges will apply.

You will be invited to sign and return the document/paperwork to your provider, as well as make the payment to the funder before the expiry date.

If there are any excess mileage or damage charges to be paid for your leased car, these will be invoiced separately after termination.

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3. Arrange collection of the vehicle

Lease car collection

When you see out a lease agreement, collection responsibilities could fall on either party. However, when you terminate your contract early and successfully pay the outstanding finance, you will be contacted by the company who will arrange a suitable day for you to hand over the keys.

To find out everything you need to know about returning your leased car, see our full guide to doing this here.

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Early termination criteria

Before you contact your provider and ask to exit your lease agreement, check the following criteria to ensure that it’s the right option for you.

  • PCH (Personal Contract Hire) agreements can’t be terminated unless £1,500 of the monthly payments have already been paid.
  • BCH (Business Contract Hire) agreements will require the sales details, current vehicle mileage and a payment equivalent to 2% of the gross sale price on top of the early termination fee.
  • Payments must be up-to-date, and arrears can’t be older than 41 days.
  • The contract can’t be terminated until all outstanding funds are paid.

What if the early termination fee is too much?

Don’t panic if you find yourself not being able to afford your monthly lease rentals but can’t afford the lump of the early settlement fee either. Some funders might be able offer you one of two options.

Transferring your lease

Depending on the leasing company and finance provider behind your leased car, you may be able to transfer your contract to another person. This allows you to exit the terms of your original agreement by transferring it over to someone else, who then carries on the monthly payments.

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This process isn’t straightforward and will only tend to be considered on a case-by-case basis. At the time of transfer, the deal must have 12 months or more to run and the original finance holder mustn’t be in any arrears, such as repair costs for damage. Also, this won’t be an option if the total of monthly payments made is less than £1,500.

If approved, both you and the person taking on the agreement will need to sign a Transfer Modifying Agreement which confirms the change of leasee.

Remember: a fee of around £500 will be charged for the transfer of a contract.

New payment plan

If personal circumstances mean that you can no longer afford your monthly lease payments and the early termination fee is too much, you may be able to temporarily lower or halt the rentals.

This option will only be available if you can prove to the finance provider that you’ll be able to return to the full payment plan (and cover the difference in cost) after the agreed period.

For example, if you’ve changed jobs and need some time before you see the first pay packet come in. Regardless of the circumstance, you will be required to complete a detailed income and expenditure form to show proof of the situation to the finance provider.

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Want to know more about leasing? Then check out our handy guides page for all the information you need to lease confidently.

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