Ending a car lease early

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

BuyaCar team
Apr 27, 2018

No matter how secure you are 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 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 in your car for a reasonable cost. Car leasing is a bit different, however. It's often known as personal contract hire and is effectively long-term car rental. Ending one of these agreements early can be expensive. Read on for your options.

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 is easy to understand: after your initial payment, you're charged monthly instalments to rent a car for a set term and then return the vehicle.

You sign a fixed-term agreement, which is usually between two and four years. As a result, there’s often no cheap way to settle. If you want to hand your car back early, then you may well be asked to pay all of the remaining instalments due as a settlement fee. 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 - you might suddenly need a larger, or more economical car, for example. However, there’s no guarantee.

In both cases, it’s always worth asking 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.

Alternatively, negative equity finance may help. This allows you to add on a settlement fee to finance payments for your next car and pay both of them in a single instalment each month. This can be a good option if you badly need a different car, but isn’t always cost-effective when it comes to ending a lease early.

Unlike other types of car finance, there is no voluntary termination option, which allows you to return the car once you have paid half of the amount borrowed.

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 some of the cost of the car - the value that the car’s expected to lose during the agreement - so payments can be similar to a lease. At the end, you can return the car or there’s an option to buy, which is known as the balloon payment.

The cost of ending a PCP agreement early tends to be based 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 returning the car and paying the settlement fee, which would include the £500 difference. If the car's worth more than the outstanding amount, then the fee may be negligible.

You can also end PCP finance early to trade your current vehicle in for another one. If your car is worth more than the amount left owing, then you should even get a discount on your next car. But if there is a settlement fee to pay, then it may be possible to add this to your finance agreement for your next car with negative equity finance: you’ll then make the payments for your next car and the settlement fee in monthly instalments.

Bear in mind that you may 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. This usually happens towards the end of a finance term unless you top up the payments with extra cash.


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