NASE Blogs

From the Trenches ... Getting Out of a Car Lease

Friday, November 26, 2010

Q.        I leased a car through my company with a personal guarantee and because my business is off, I can't afford the payments. The only option the leasing company is offering me is to trade the car for a less expensive vehicle that will then lower my monthly payment and will require me to extend the lease for several years. The car value is upside down so selling it is not an option. Is there any way to get out of this lease?

 

A.        This is one of the reasons I am not a great fan of automobile leasing. While there are some circumstances where a lease is a reasonable fiscal option, they don’t fit the vast majority of people who lease and the end result is that you are in the control of someone else forcing you to make financial decisions. Forgive my soapbox but the auto financing industry (including leasing companies) are making huge dollars on selling snake oil when it comes to leasing cars.

What it comes down to for you is that you don’t have too many options that will not cause the leasing company to look to you for the full term of the lease. Even if the lease is under your business name, you have a personal guarantee on it so if your business defaults the leasing company will look to you for the remainder of the lease. Either way, if you default on the lease your personal credit is in the dump.

What you need to think right now is “cash flow”. Even if you were able to get out of the lease you would still need a vehicle and would have to replace the leased vehicle. Even if you bought a low end used vehicle, you would probably be talking several hundred dollars a month in payments. So, if you can get the payments down to a manageable number even if you have to trade the lease out on a less expensive vehicle or even simply extend the lease on the existing vehicle for a year or two, it might be a reasonable option. Again, the key for you right now is to consider your cash flow and how much you can afford for a monthly payment on a vehicle. As your business situation improves and your financial position gets better you can consider doing a buy out of the lease for the value of the vehicle or you could trade out the lease on the purchase of a different vehicle. In the meantime, the upside-down value on the car will work itself down.

Another option to consider is to sell the lease. Over the past few years numerous online services have evolved that match up people who want out of their car leases with people who will buy the lease, or basically take it over. You can go online and Google for auto lease buyouts and you will find services that match people wanting to get out of a lease with people who want to take over a lease. A word of caution here is that you will still be primary on the lease so you want to be sure you deal with a reputable buyer and a reputable matching service.

Whatever you consider keep the key words “cash flow” in mind and your object is to minimize the outgo of cash. Be careful of making a decision that will only save you a few dollars a month and cost you more in the long run. If don’t ever consider a lease again until you crunch the number and determine if your profile fits that of a person who gets the better end of a vehicle lease or if you are just putting more dollars in the pockets of people who are trying to convince you that leasing is the best way to drive a car!

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