Ending a car leasing agreement early

Leasing is the most popular way to get behind the wheel of a new car – allowing drivers to spread the cost of a model they may not have been able to afford outright across a number of years. Nine in 10 new cars are financed in some way; however, keeping up the instalments can sometimes be harder than initially expected.

Fortunately, it is possible to terminate a car leasing agreement early, but whether you want to do this is a different matter, because the financial penalties can be severe. To understand the pros and cons of early termination, you need to be aware of what you'll be liable for, so you need to know how termination fees on car leases are calculated. 

If you're unsure about your longer-term financial status, you should carefully consider the model of car you’re interested in and the length of leasing deal you choose.

If you still want to terminate your agreement, we look at the questions you'll need to consider below:

Can I cancel a car lease early?

Not all providers allow customers to cancel a car leasing contract, and those that do charge a considerable amount for the process, so it's often a last resort. Nevertheless, if your circumstances have changed through redundancy or relocation, it's certainly something you may consider. 

There will usually be some kind of financial penalty for cancelling a car lease early, and this will be determined by the leasing provider. It's highly unlikely you'll be able to pay off the lease in full, and you won't get your initial rental payment (or any subsequent payments) back.

It’s important to contact your lease provider and let them know your circumstances as soon as possible so they can explain their cancellation process and what options are open to you. The leasing provider may also be able to make negotiations to prevent you from having to cancel, such as extending the lease to reduce monthly payments.

Can I end a hire purchase agreement early?

There's a little more flexibility if you've bought your car using hire purchase (HP) or a conditional sale agreement, but the process of returning your car can be different. We've gone into this in more detail below.

What is repossession and voluntary surrender?

If you can't meet your repayments, the leasing company might wish to repossess the vehicle. You can pre-empt this by voluntarily surrendering the car, but you will still be liable for the outstanding repayments. Even so, you'll generally be liable for a lot less in a voluntary surrender arrangement than you would be following a repossession. 

The 'rule of halves and thirds' applies here. If you've repaid less than a third of the Total Amount Payable (TAP), the provider can notify you that it plans to take back the car. However, it will need a court order to do so if the car is parked on your drive or in your garage, although not if it's parked out on the road. Similarly, if you've repaid more than a third, it will need a court order no matter where the car is parked.

Other options commonly available to drivers looking to cancel their car lease early include:

- Voluntary termination – available to drivers who have paid at least half of the TAP, including any interest or admin fees. This process allows you to hand back the car and walk away, but you won’t receive a refund if you paid more than necessary.
- Early lease car settlement – allowing you to pay off the loan early and keep the car. In order to do this, you might have to pay an early settlement fee. However, should be entitled to a rebate on future charges.
- Car lease transfer – A final option involves 'selling' your lease to someone looking for a short-term car lease. However, check your paperwork carefully because not all leasing companies will allow this.

How are car lease termination fees calculated?

This depends on the type of contract you have made, and details will be explained in the small print, so it's important to check this carefully before signing to confirm that you've understood and agreed to them.

With contract hire, you can expect to pay about 50% of the outstanding payments, providing no less than six months remain on the contract.

Personal contract purchase (PCP) arrangements are much easier to get out of, because you can often sell the car to help meet the settlement figure.

Are there any additional fees?

No matter whether you’re returning a car early or when the leasing agreement expires, it’s vital that you make sure it’s in the best possible condition. The company could issue additional penalty fees if the car features damage beyond the ‘fair wear and tear’ guidelines created by the British Vehicle Renting and Leasing Association (BVRLA).

Unacceptable forms of wear and tear that will likely result in an extra charge include scratches longer than 25mm, dents larger than 10mm or curbed wheels. It’s a good idea to take plenty of photos of the car, which could help to resolve any disputes if any damage occurs between when it’s collected from you and inspected by the provider.

You could also incur a charge if the car has exceeded the agreed mileage limit. Most companies enforce an excess mileage fee of around 10p per mile over the limit, meaning the charge can quickly add up. If a change of circumstances means you’ll soon be driving higher miles, it’s always best to call the finance company as soon as possible to let them know. 

FAQs

Can you come out of a car lease early?

Yes, but it’s not a decision that should be made lightly. Cancelling a car lease before it is due to end will involve some kind of financial penalty, such as an early termination fee. If you’re considering cancelling a lease early, it’s best to talk to your provider to see how much you’d be charged and what could be done to prevent it.

What's the earliest you can return a leased car?

Lease contracts typically feature a 14-day cooling off period which allows you to end the agreement without incurring any penalty. Once this has expired, you can still end your lease at any time but would be expected to pay a fee for breaking the contract.

What is the early termination fee?

An early termination fee is the charge paid by drivers who end their car lease early. This figure will vary, depending on the car in question and how many remaining months the lease has, but could be between 50% and 100% of the outstanding balance.

What happens if you write off a lease car?

Finance providers will end the contract of a lease car that has been written off, and you’ll need to enter a new agreement if you want a replacement. When a car is written off, the finance provider and insurance company will discuss a settlement, based on the car’s value. If this doesn’t meet the expectations of the finance company, it’s down to you to pay the difference.

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