How to get out of a lease before your contract expires

When your lease is up, you can simply turn in the keys and lease another

car or buy a new one. But how about getting out before the lease ends?

Maybe you can’t afford the sky-high payments on that silky Jaguar JX V6

model anymore or you’ve just had a baby and you need a larger and more

spacious vehicle?

Unfortunately getting out of a lease is not as easy as getting in! A

leasing contract is difficult and expensive to terminate early. Simply

turning in the keys and walking away from a lease can result in stiff

penalties. You credit could be ruined and you could even get sued for

breach of contract.

It’s not all doom and gloom though. Actually, there is a number of

options available to you.

You can sell the car yourself and pay off the bank. This can be cost

effective if the market value of the car is close to the buy-out number.

Do not hesitate to exercise this option even at a loss if it happens to be

lower than the termination fee.

Your best option, though, is to transfer your lease for someone who would

“assume it” and take it off your hands. There is a whole set of potential

buyers looking for short-term leases without all the hassle and extra

costs. Check with family and friends or use the services of lease-

assumption websites, like swapalease.com, to list your car. Make sure you

check the credit worthiness of the new lessee and provide the car in good

The residual value of leasing

If you are in the market to lease a vehicle, you will hear the term

“residual value” recur like a leitmotif. A residual value does not only

affect your monthly payments, but is equally used by leasing companies

to determine any penalties should you break your lease early and how

much to pay if you decided to buy the vehicle at the end of your lease.

Let us first start by looking at the meaning of residual value. The

term “residual value”, refers to the value of something after it has

been used for some time. In leasing lingo, it refers to the

depreciation of the vehicle’s value over the life of its lease.

So how does it exactly affect your monthly payments? When you lease a

car, you pay for the car’s value that you use over the lease length.

Suppose you leased an $18,000 car for 2 years: the leasing company

needs to estimate the value of this car in two years time in order to know

how much of the car you will be using during your lease term. That’s where

the “residual value” comes into the equation. If the residual value is

estimated to be $13,000 at the end of your lease, then your monthly

payments will be calculated on the $5,000 you will use over 24 months,

giving an average monthly payment of $208.3 (plus interest, tax and fees).

How about if the car is expected to lose half its value over the same

period? In this scenario, you will be using $9,000 over the same period,

leaving you with a higher monthly payment of $375 (plus interest, tax and

fees).

As you can see, residual values are a key factor in determining how much

money to pay on your lease and the higher the residual value, the lower

your monthly fees. This works in reverse if you build a bond with your car

and decide to purchase it at the end of your lease. If we stick with the

same example above, the lower monthly payments in the second scenario come

at the cost of paying substantially more to buy your car at the end of the

lease.

So, since the residual value is so important, how do I know which one is

best for me? Well, it all depends whether you want to purchase the car at

the end of your lease. If you don’t want to make a large down payment and

you want low monthly payments, then a car that holds with a higher residual

value is a good deal. If you are thinking of purchasing the car at

lease-end, then you need to balance low-monthly payments with a moderate

Leasing used cars explained

Leasing a used vehicle can be an attractive deal in many ways, no least

getting you into that luxury model or SUV, for lower monthly payments than

a brand new one. Be prepared, however, to do some more homework to dissect

a good deal.

As with new car-leasing, your price research should focus on the key

figures that are the initial market value and the estimated residual value

of the used car. This is harder to predict since there is no factory-set

sticker price on used cars, and the residual percentage is very much pegged

to a subjective current retail value. Use different sources to get a rough

idea of the value of the used car: your local dealerships, internet

car-evaluating tools, such as Edmunds.com and Cars.com, to name but a few.

Another way to pin down a good estimate is to compare the lease on your

given car to a lease on a new-car with the same make and model. This should

give you a better picture of the difference between leasing new and going

for used. Just like leasing a new car, used vehicle leasing is more

attractive when residual values depreciate the least. You stand a better

chance of finding a bargain in the high-end, luxury vehicles that keep

their values better as used cars.

Next, you need to check the initial mileage and the overall vehicle

condition. The maximum mileage on a used car should be no more than 12,000

miles a year. A 3-years old car with 50,000 miles on the clock is very

unlikely to make a good used-vehicle lease. Check for signs of excessive

use, like worn seat fabric, worn pedal pads and dirty engine, which might

indicate that the odometer has been rolled back. If the car is not

certified, you need to get it thoroughly inspected. Ask your dealer for a

manufacturer-sponsored certification program or have your car certified by

a qualified mechanic or inspection service.

Most used-car deals don’t come with gap coverage. This is a special type

of coverage, normally offered on a new auto-lease, to cover the consumer if

the leased vehicle is lost, stolen or damaged. Typically, auto-insurance

policies cover only what your car is worth at the time of loss, not what

you still owe on the lease. The difference could run into thousands of

dollars. For peace of mind, do not enter into any used-car lease without

gap-coverage. Arrange it separately with either the lease dealer or your

auto-insurance company.

Go green and save on your lease

Hybrid vehicles’ popularity has sharply grown from a couple of thousands

in early 2000 to close to 300, 000 by the end of 2005. The trend is

rapidly catching with the auto-leasing industry with generous tax credits

and incentives on offer if you go green.

Beginning in 2006, businesses and taxpayers who lease, or purchase, an

environmentally-friendly and fuel-efficient vehicle will be eligible to

claim federal income tax credits worth thousands of dollars. Individual

states also offer generous incentives, including hybrid state tax credits,

new High-Occupancy Vehicle (HOV) lanes access and discounted thruway tolls

for alternative-fuelled vehicles.

And that’s not all you can save from going green! You can now save on your

parking fees at a number of universities and some auto-insurance companies

are offering insurance discounts for hybrid-vehicle owners nationwide.

If you want to take advantage of these incentives and contribute to energy

conservation then visit HybridCenter.org and complete a personal profile

about your driving needs and habits. You will get in-depth advice on hybrid

models that would make economic sense to you and local, state and federal

incentives available where you live.

Luxury Cars and Resale Values

When it comes to ultra-luxury, high-end vehicle leasing, there is no doubt

that the best deals are those cars that hold their value. With this in

mind, we single out a few truths about residual values that consistently

apply to high-end leasing.

The most determining factor when it comes to resale values is public

perception of the brand, not its reliability ratings in quality surveys.

Take the Jaguar for example: it is consistently rated as a quality car, but

because of questionable reliability perception among the public, it takes a

sharp dip in value at the end of its lease-term

Higher-tech options and other cutting-edge features do not necessarily mean

the car will fare better. By the time your car is two years old, better

and cheaper systems will render the laser-guided cruise control, navigation

systems and built-in cell phone obsolete. Look for functional features,

such as automatic transmissions, power windows and wheel-drive to enhance

the vehicle’s value in the used-car market.

Used-car buyers view less favorably luxury vehicles that come with big

incentives. These are perceived as questionable in quality and

Fees involved in leasing

Mention auto-leasing and most people will automatically assume a low-

monthly payment. There is actually more than what meets the eye, and a

number of fees are involved at various stages of the lease process.

At the beginning of the lease, you have to pay a refundable security

deposit, typically equivalent to one monthly payment, to safeguard against

non-payment and any incidental damage done to the car at the end of the

lease. You are also required to pay an administrative charge, called

acquisition fee. Other fees include licenses, registration, title and any

state or local taxes.

During your lease, and you expected to honour your monthly payment

obligations. Any failure to do so will result in late-payment charges.

You have to pay any traffic tickets, emission and safety inspections and

ongoing maintenance costs. Ending your lease early will result in

substantial early termination charges.

At the end of the lease, expect to pay any excess mileage costs, charged

at 10 to 20 p a mile. Any incidental damage done to the car, and deemed to

be above normal, will result in excess tear-and-wear charges. Finally, if

you choose not to purchase the vehicle, then you have to pay a disposition

Leasing Glossary

In order to get a good leasing deal, you need to understand leasing jargon.

Read through this leasing glossary to get an overview of the basics:

Acquisition fee: A fee charged by a leasing company to begin a lease. Not

all leasing companies charge an acquisition fee but if charge it starts at

about $300 and is seldom negotiable.

Capitalised cost: The total selling price of the leased vehicle This also

accounts for taxes, title, license fees, acquisition fee and any optional

insurance and warranty items you elect to fold into the lease and pay

overtime rather than upfront.

Depreciation fee:

Forms part of the monthly lease payment charge and accounts for the loss

in the value of the car at the end of the lease. The vehicle’s list price

minus the expected residual value at lease end is divided by the number of

months in the lease to give the depreciation fee. Suppose you decide to

lease a vehicle with a retail price of $23,500. The leasing company

estimates that after a three year lease, the vehicle will be worth 35% of

its original retail value, or $8,225. The difference, $15,275, divided by

the number of months in the lease, 36 months, gives us the depreciation fee

($424)

GAP insurance Pays off the lease balanced if the vehicle is wrecked, stolen

or totalled.

Inception fees any fees that are due at the beginning of a lease. These

typically include a security deposit, acquisition fee, first monthly

payment, taxes and title fees.

Mileage allowance The maximum number of miles a leased vehicle can be

driven a year without incurring an excess mileage penalty. A typical

mileage allowance is 12,000 to 15,000 miles a year, although this is

negotiable with your leasing company.

Mileage charges a penalty that you incur if you exceed your mileage

allowance on a leased vehicle. Typical mileage charges are 10 to 20 cents

per excess mile.

Money-factor A fractional number, such as 0.00043, used in calculating your

monthly lease payments. You can get a rough estimate of the annual

percentage rate on your lease by multiplying the money factor by 2,400. If

a dealer quotes a money factor such as 3.4 than you can get the equivalent

APR, 8.16, if you multiply by 2.4.

Residual value Residual value is the amount of money the leasing company

says your leased vehicle will be worth when your lease ends. Higher

residual values lead to lower monthly payments but higher lease-end

purchase cost if you decide to keep the vehicle.

Security deposits an up-front amount that your leasing company required at

the beginning of a lease to safeguard against non-payment. This is

generally refundable at the end of your lease.

Termination or Disposition fee The amount you have to pay the leasing

company at the end of your lease if you decide not to purchase the vehicle.

Wear-and-tear charges Extra charges you have to pay at the end of your

lease for any wear and use the leasing company considers above normal