If you're leasing a car (or are going to) it's peace of mind knowing that you can terminate your lease agreement, should you no longer be able to afford the monthly payments. However, you will need to pay an early termination fee and any outstanding finance on the vehicle.

Whether your circumstances have changed and the lease rentals are no longer affordable, or you no longer want/need the car, there's a number of ways you can go about getting out of your leasing contract.

Are you in a position where you need to end your car lease? Read on to discover how you can go down the route of an early termination in this guide.

How much does it cost to end a car lease early?

After your car has been ordered, you'll be given a contract from the finance provider which will show you the early termination fee price. This fee won't be the same for everybody, and it will depend on the make and model of your chosen car, plus the individual company providing the finance for the vehicle.

We examined the early termination fees of a Toyota Aygo lease agreement and the cost was £560 in fees.

*Although this is a real example, figures are indicative and won't be the same for everybody. An individual's credit profile, finance provider and make/model of vehicle will affect the early settlement cost and monthly rental amount.

Fees aren't all you need to be aware of when you want to terminate a lease agreement, there's also any outstanding finance for the car that you haven't paid.

Continuing to use the Aygo as an example: if the lease agreement were to be cancelled now (six months in to a 36-month term), there would still be 30 months' worth of monthly payments owed to the finance provider. Because the monthly rentals for the car are £176.36, the remaining finance you would need to pay (on top of the £560 early termination fee) would be £5,290.80.

Adding together the early termination fee and remaining finance balance on the lease car, you would need to pay £5,850.80 in total to get out of the contract right now.

Is there a cooling-off period when leasing?

Under the Consumer Contracts Regulations, you have a consumer right to cancel a "distance or off-premises contract at any time in the cancellation period without giving any reason".

This includes purchases made online, over the phone, by mail or a purchase which has taken place face-to-face but not on a trader's premises. As such, car lease agreements are also subject to a cooling-off period, usually lasting 14 calendar days from the point of completing your order.

A cooling-off period is designed to help you fully inspect and assess the car and service you're given. It's also an opportunity for you to review legal documentation and T&Cs of your lease agreement so that you're completely comfortable with what leasing entails.

Should you decide to terminate your car lease agreement during this cooling-off period, you won't face any penalty. You should be aware that the Consumer Contracts Regulations has some exceptions whereby, if you were to cancel your contract during the cooling-off period, you may still face liability. This includes:

  • Where a consumer requests early supply of a service.
  • Where value of goods are diminished by consumer handling.
  • Where goods are returned by the consumer.
  • Where enhanced delivery is chosen by the consumer.

If you've paid a processing fee on your lease agreement for a leasing company to broker your deal, you'll be entitled to a full refund of this fee after terminating your contract within the 14-day cooling-off period.

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How to terminate your lease agreement early

Whether you're terminating your lease agreement within the cooling-off period or not, you must do so in writing (by post or email) and make sure the content clearly states your desire to cancel your leasing contract.

Within the written notice of your cancellation, you should include the following:

  • Your full name.
  • Current address.
  • Details of the lease agreement you want to cancel (e.g. make and model of the car, order reference number etc.)

If you're cancelling your car lease agreement early and are entitled to a processing fee refund, this should be paid in full within 28 working days from the day the finance provider receives your notification of early termination.

What are the alternatives to early termination?

Are the early termination fees and outstanding finance too much for you to settle? Don't worry! Here are two ways you could avoid having to pay over the odds to get out your lease agreement.

1. 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

2. Reduced monthly payments

If the cooling-off period for your car lease has passed and your circumstances (i.e. changing jobs, address etc.) mean you can no longer afford the monthly payments, your finance provider could temporarily reduce the cost of your rentals to give you time to find your feet.

You should remember that a reduction in cost of monthly lease payments is done on a case-by-case basis and will be subject to approval from the finance provider.

It's important that you contact your leasing provider straight away if you can no longer afford the monthly payments. They will be able to guide you on what to do so that you aren't hit with late/missed payment charges and can agree any new terms that can help you manage the finance.

3. Transferring your lease

You may be able to transfer your lease agreement to another person, which would then allow you to exit the terms of your contract. This individual would then carry on paying the remaining monthly lease payments for the car.

There are some criteria that need to be met before you can transfer a car lease agreement to someone else, including:

  • The deal must have 12 months or longer remaining.
  • The previous finance holder mustn't be in any arrears to the finance company (e.g. owe money for missed/late payment charges or damage charges).
  • Total payments made already must be £1,500 or more.
  • If approved, you and the new finance holder must sign a Transfer Modifying Agreement confirming the change.