Ending a car lease early

Know what you're signing up for: ending a car lease early is possible but can be expensive

BuyaCar team
Nov 8, 2018

Whatever your position when you sign up for a leasing or finance agreement, your situation can change unexpectedly. You might need a different vehicle, to cut your repayments, or even to get rid of a car entirely.

If you own your car, or have a finance agreement, then it’s often possibly to return or trade it in for a reasonable cost. 

Car leasing is a bit different, however. It's also known as personal contract hire and is effectively long-term car rental. There is no automatic right to end one of these agreements early, so it can be expensive. You can see some of the options below

Personal Contract Purchase (PCP) is a type of finance that operates like leasing - with low monthly payments and the option to return the car at the end. We've outlined some ways to end PCP early further below.

   

Ending a lease agreement early

Car leasing requires an initial payment. You're then charged monthly instalments to rent a car for a set term and then return the vehicle.

The terms are all set out in a fixed-term agreement, which usually lasts between two and four years. As a result, there’s often no cheap way to end it early. If you want to hand your car back early, then you may be asked to pay all of the remaining instalments due to settle the agreement. If that happens, you might decide that it’s better to keep the vehicle and make your payments as normal.

You may get a more favourable option if you ask the leasing company to switch your lease to another vehicle - a larger, or more economical car, for example. However, there’s no guarantee that the request will be accepted.

In both cases, there's no harm in checking to see if a favourable option is available, but it’s best to assume that you’ll have to pay the full amount that you owe.

In a few cases, negative equity finance may help. This allows you to take out finance for a new car and add on the costs from a previous agreement, paying both in a single instalment each month. This can be a good option if you badly need a different car, but is unlikely to be cost-effective when it comes to ending a lease early.

If you are struggling to make payments, then you should contact the leasing company immediately, as they may be able to help.

   

Ending a lease-type agreement early

There are more options if you have a lease-type of finance - Personal Contract Purchase (PCP) is the most common.

The monthly repayments only cover part of the car's cost: the value that it's expected to lose during the agreement, so payments can be similar to a lease. At the end, you can return the vehicle or there’s an option to buy, which is known as the balloon payment.

The cost of ending a PCP agreement early ultimately depends on the value of your car, compared with the amount left to pay (including the final balloon payment).

So if you still owe £7,000 and the car’s worth £6,500, you could cancel the agreement by  trading the car in and then paying up the £500 difference, or using negative equity finance to do so. If the car's worth more than the outstanding amount, then you should be left with a surplus that could be used towards another car.

Bear in mind that you will still be liable for excess mileage and damage payments if you end your PCP agreement early: your mileage limit will be adjusted to take into account the reduced length.

Voluntary Termination is also an option with PCP finance; you can return the car once you've paid off half of the total debt, including the balloon payment. However, the size of the balloon payment means that this usually happens towards the end of a finance term. You'll need to top your repayments up to half of the debt if you want to terminate the agreement earlier.

 

Ending a lease with Voluntary Termination

The right to Voluntary Termination once you have repaid at least half of a finance agreement does not apply to leasing because it's not classed as car finance (there's no borrowing involved).

As a result, you have no automatic right to return the car early.

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