Ending a car leasing agreement early

You can terminate a car leasing agreement early, but whether you would 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. Nevertheless, if you are struggling to meet your payments you should let your leasing company know straight away, because they might be able to help you out. If you're unsure about your longer-term financial status, you should carefully consider the length of leasing deal you choose.

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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?

Cancelling a car leasing contract can be costly, so it's often considered to be the 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, 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.

Remember that not all providers offer the ability to enact an early termination.

Can I end a hire purchase agreement early?

There's a little more flexibility if you've bought your car using hire purchase or a conditional sale agreement, but the process of returning your car can be different, and 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. So, 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.

If you've repaid more than a third, it will need a court order wherever the car is parked.

Once you've paid at least half of the TAP, you have the option to hand back the car and walk away, in a process called voluntary termination. You can do this at any time and the amount payable should be stated on the contract. If you've already paid more than half, you won't be offered a refund.

Early lease car settlement

You can also pay off the loan early and keep the car, but you might have to pay an early settlement fee. You 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.

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