Does anyone know what happens when you break a lease?

Question

Has it actually happened to you??? And what happened???

Answer 1

In most cases when you terminate a lease early the leasing company recomputes the lease as if you had selected the shorter term up front. Then they add up whatever you've already paid and credit you with that amount and bill you for the (usually substantial) difference.

The dirty little secret to this is that when you turn the vehicle in early they use the ACV of the car at turn-in time to recalculate the lease. This effectively "converts" the lease from a closed-end lease to an open-end lease.

In an open-end lease, the residual value is determined at lease end. An estimate is used up front to calculate the lease payment but the contract provides that it will be recalculated at lease end. As one would expect the final residual value was often far less than the one used in calculating the original lease payments, resulting in a large balance outstanding at turn-in. For this reason, open-end consumer leases were made illegal over 20 years ago.

In a closed-end lease, the residual value is fixed at the contract start. If the vehicle is worth less at turn-in (other than for excess mileage or damage) then the lease company eats the shortfall. If it's worth more then the customer eats it.

When you turn in early, most contracts provide that the ACV at turn in will be used to recalculate the lease, effectively sticking you with an open-end lease and often a major shortfall that is due in full immediately.

Answer 2

You will still be liable (responsible) for the total of the lease payments remaining.

For instance, if you had a 24 month lease for $100 per month, ($2400 total) and you already paid for 13 months of usage ($1300), you would still owe $1100, the remaining lease balance for the 11 months you have not used.

You can try to mitigate your situation by buying the leased vehicle and then selling it privately, however, most leassors will be "upside down" meaning they will owe more than the car is worth.

Your best bet is likely to "ride out" the lease if you can. Otherwise, you can try the option listed above or working with another car dealer to trade-in the leased vehicle. The dealer will purchase the vehicle and apply any remaining payments to your new loan balance. This is a very expensive option where you will be paying for part of a car you no longer own, but it is a possibility.

If you break a lease, you will be held accountable. The leasing company will likely initiate legal proceedings and get a judgement against you, upon which, they can garnish your wages till the debt is paid.

Answer 3

If you were suppossed to live there for a long time then the person you signed the lease with can sue to have you pay the rent for that amount of time, or until someone is found to replace you. Example: You signed a lease for 12mo. and left after 6mo... you owe landlord 6mo. rent, or a new renter. Depending on the lease, area you live in etc. Its really better to try to ask to get out of a lease rather than cut and run.