The Disadvantages of Returning a Lease

Although it isn't a wise move, it is possible to end a car lease early. Reasons range from a change in income to no longer needing the car because you want to move to a major city. Regardless of the reason, however, returning your leased car to the dealership early comes with a number of disadvantages.

Breach

When you return a lease early it constitutes a breach of the lease agreement. It is similar to changing your mind about an apartment after you've signed the papers and moved into the space. The lessor (the dealership financing company in this case) is inconvenienced because the property is now used and the company must find a new lessee. It is common for a car financing company to take action to discourage a breach of the lease agreement.

Early Termination Penalties

One action that car leasing companies take to discourage returning a lease before its time is charging early termination penalty fees. These fees are commonly very expensive for the person leasing the car. In some cases, the lease agreement may require the lessee to pay a fee equivalent to the remaining payments due on the agreement.

Credit Reporting

Another disadvantage to the lessee if he returns the car early is that the financing company may report the breach to credit bureaus. The leasing company calls this situation a "voluntary repossession," which means that the lessee willingly gave the car back. If the leasing company lists a repossession on the lessee's credit report, that has a seriously negative affect on his credit rating and remains for seven years. Experian representative Rod Griffin confirms, "If there's a repossession on your credit report, it would do serious damage to your credit."

Alternative Option

An alternative to returning a car lease, which allows the lessee to avoid penalties, is to attempt a lease transfer. In this type of arrangement, the lessee finds another willing and qualified person to take over his payments. It is sometimes difficult to arrange, which is why many online lease transfer websites assist with this process. They publish information about the car up for transfer online and pre-qualify interested parties. The lease transfer service then facilitates the transaction between the new lessee, old lessee and the financing company to ensure a seamless transfer.