Financial instability can happen unexpectedly. Unforeseen job loss or illness can restrict your income and make it difficult for you to make your scheduled payments every month. Unfortunately, this is a reality many Canadians know all too well. As inflation continues to drive up the cost of essentials, many Canadians find themselves unable to honour financial commitments they made in the past.
If you are looking to reduce your expenses and minimize your debt. You may be wondering what you can do about your leased vehicle. If you are curious to know what your options are. When it comes to getting out of a lease, you’re in the right place. Read on to earn everything you need to know about getting out of a car lease.
Should I Buy a Car or Lease It?
Before we jump into how to break a lease.Let’s find out more about whether or not leasing a car is the right financial decision for you.
Leasing a Car
When you choose to lease, the monthly payments are often more affordable. At the end of the term, you return the car or buy it back from the dealer – the decision is yours. Should you decide to sell it beforehand, there may be financial repercussions to doing so. Cars are typically leased for periods of two to four years.
Buying a Car
Buying a car involves a down payment and very often, a loan. The payments may be higher but the advantage is that the car is yours to keep and you can get your money’s worth if you keep it for many years. You can also sell the car any time you like and keep the money because the vehicle is yours. The only caveat there is that cars depreciate quickly. If your payments are stretched over a long period, there will be a point. Where the value of the car is less than what you owe so selling it may not be beneficial to you.
Making the decision to buy or lease depends on your needs, your finances, and your preferences. You can choose the option that works best for you by weighing all the options.. Of course, doing the math to see which option is the most affordable for you.
Why You May Want to Get Out of a Car Lease
There are many reasons to consider getting out of a car lease. Here is a closer look at some situations in which getting out your car lease might be the best answer for you:
Your Financial Situation Has Declined
You may have signed the lease when you were earning a good salary. Unexpected layoffs will drastically alter your financial plans – particularly if you don’t have a contingency fund to rely on. If your finances can no longer support the financial commitments you have made, you
will have to try and get out of your lease before your credit becomes damaged due to missed payments.
Your Vehicle Needs Have Changed
You may love your two-door sports car but if your life suddenly changes. That car no longer works for you, then you will need to get a different vehicle. Expanding your family can be an example of a time when your car may no longer suit your needs. As your family grows, you will need more space. If your vehicle doesn’t suit the needs of your everyday life any more, it’s time for a change.
You’re Moving
If you are moving to another province or city, it may not be very practical to take your car along. In this case, you would need to find a way out of your lease so you are no longer responsible for the payments on the car.
Your Termination Fee is Less Than What You Owe
If your lease payments have been extended over a long period. You may reach a point where the termination fee is more affordable than the remaining car payments. If this is the case for you, getting out of your lease may be beneficial to you from a financial standpoint.
READ ABOUT : Tips on Buying a Car from a Dealership
How to End a Lease Early
Ending a lease before the contract allows for it can have some financial repercussions but it is still possible to do it. If you are stuck with no other choice and need to get out of the lease, here are your options:
Transfer the Lease
You can post an ad on social media or on car listing websites – even Kijiji will do. Advertise your lease transfer to see if anyone ese is willing to take over the rest of your contract. This is the safest way to go about getting out of a lease with minimal loss.
Buy Out the Lease
You can choose to pay off the remainder of the value to end the lease. In this case, you would be ending the lease prematurely and still paying the total amount. This is not the best choice if you have financial troubles but if you are simply looking to upgrade, you can go ahead and try this to speed things up.
Ask for Early Lease Termination
This will depend on the contract you signed. When you lease a car, the contract states exactly what the dealer or seller expects in the even that you wish to terminate your lease prematurely. There are varying policies from dealership to dealership. In most cases, you will have to assume a penalty and that amount can vary by dealer, by car, and by the amount remaining on the vehicle.
Trade Your Car In
You can trade in your lease and use it as equity against a new vehicle from the same dealer. There may still be some financial loss, but it is often more affordable than cutting your lease and paying the penalty.
How Do I Make Sure I Make the Right Decision?
Before you decide whether or not you want to get out of your car lease, you should review your contract. Verify all the fine print to see what the exact financial repercussions are of abandoning or terminating your lease before the due date. While this can be pretty standard, it’s not uncommon to find some unexpected surprises in there.
Before you commit to terminating your lease early, evaluate the complete financial cost of doing so. There may be excess fees you aren’t realizing are part of the package. It is best to weight all your options and calculate your exact loss before you go ahead with the decision to terminate your lease.
Will Getting Out of a Lease Impact My Credit?
Yes, terminating a car lease before the due date can have repercussions on your credit history. Transferring a lease will not impact your score but terminating and paying the penalty will. The best way to decide whether or not this is the right step for you is to evaluate the impact on your credit if you don’t terminate your lease. Will you miss payments? Will you have to stop paying altogether at some point? Will you be stuck frequently paying late?
All of those options also have financial repercussions on your credit score. There may be no easy way out of the lease situation but you can take the option the offers minimal impact on your credit score and save yourself at least some trouble.
Failure to pay your monthly payment can lead to you being placed in collections, additional interest fees, and even impounding of the vehicle. All of these can dramatically affect your credit score.
Transferring the lease of your vehicle to someone who is willing to take it over is generally the safest way to go about breaking your car lease. It has no impact on your credit score whereas some of the other options do. Damaging your credit is something you should try to avoid as much as possible.
READ ABOUT : What Makes a Car Perfect for Canada?
What Happens if My Credit Score Suffers?
There are several consequences to having a low credit score. The main problem with a low credit rating is that you are less likely to secure much-needed loans through traditional financing institutions like banks or car dealerships. This can make it difficult for you to buy a home, qualify for a decent mortgage, or purchase a vehicle. In some cases, you may still be able to secure a loan but the interest rate will be significantly higher than it would be for someone with a better credit score.
A low credit score can also impact your ability to secure a better job. Some jobs – particularly those in the financial world – are off limits to anyone with very low credit scores. You need more money to get out debt and improve your credit but you can’t necessarily make more money with bad credit. It’s a vicious cycle that can make scrambling your way out of debt difficult.
If you are applying for a rental property, you can be denied by the landlord if your credit score is poor. This means you will have less choice of where you can rent and may be unable to rent in the neighbourhood you desire most.
Though damaging your credit is sometimes unavoidable, you should take all the steps necessary to minimally impact your credit rating with all financial decisions you make. If you are unsure what the right decision is or don’t consider yourself financially savvy, you should meet with a financial advisor to discuss your options. A qualified financial expert can help you get back on track and ensure you begin rebuilding your credit today.
How to Avoid Breaking Your Lease
The best ways to avoid breaking your lease involve steps you should take before the lease is signed. A signed lease is a binding contract and you will be subject to the penalties if you decide to terminate that contract prematurely. Here is what you can do to avoid having to break a lease down the road:
Do Your Homework First
Before you lease a car, make sure you are shopping around for the best price. This can help you avoid overpaying for your car.
Calculate Total Costs
The total of your lease is not the only expense your new car will bring. You also need to pay for gas, insurance, maintenance, and more. Plus, you have other expenses in your life. To be sure you can afford the car, you need to calculate all of your total costs to make sure you don’t find yourself high and dry in a few months.
Stick to Your Budget
Before you shop for a car, you should be prepared with a budget for yourself. Stick to it! If you overspend, you may very well end up in a position where you will not be able to afford the car anymore and will have to terminate the lease early. Keeping in line with your budget can help you avoid this problem.
Spend Less than You Can Afford
Just because you can afford a $900 monthly lease doesn’t mean you have to spend that much. Buying something under budget ad living below your means can protect you should you suffer from an unexpected job loss or illness in the future. If your financial situation changes, you may not need to worry too much about it if you have chosen a car that costs less than your budget.
Build a Contingency Fund
You should always have a contingency fund. more importantly, you shouldn’t take any money out of it unless it’s absolutely necessary. The idea is to have a backup in case you lose your job suddenly. A contingency fund will allow you to keep up with your payments while you search for another job.
Read the Fine Print
Always read the contract thoroughly before you sign your lease. In some cases, the penalty for breaking a lease may not be so bad. In other cases, it can be extremely costly. Be sure you don’t wind up in a bad financial situation by reading the policies beforehand. You can even try to negotiate a better policy for yourself . if you ever do have to terminate, the repercussions may not be as bad.
What Options Do I Have Besides Getting Out of My Car Lease?
If you really don’t want to get out of your car lease due to the financial consequences. You can choose to take out a personal loan instead and pay off the remainder of your car balance instead. This will end the lease but will get you out of owing the dealer anything. You would have to borrow enough to pay the remainder of the lease . The buy back so you can go ahead and keep the car.
The only advantage to doing this is that. You can choose a personal loan product that allows you to spread out your payments over time. If you are experiencing financial difficulty. This option can help you minimize your interest payments. Help you manage your finances at a pace you can keep up with – at least until your financial situation improves. While this may be a band-aid solution, it can help you ride the waves during a rough financial period.
The advantage you may have right now is that older cars have increased significantly in value. This means if you leased a car two years ago, the dealer may actually like getting it back because they can lease that same car to someone else for more. It doesn’t hurt to contact your dealer and ask if they would be willing to waive the penalty and allow you out of your lease early.
Get Financial Help Today
If you are in a bad financial situation . Don’t see your way out of it, met with a financial advisor. They can help you consolidate your debts, build a repayment plan that works for your needs, and help you create a budget that will keep you on track. The earlier you seek financial help during your debt crisis, the better. Waiting too long for help can result in more unnecessary interest payments and worse credit.
Private lenders can also be of service to you. If you have bad credit, securing a loan from the bank is often difficult but a private lender can help. They can evaluate your income to determine which loan products are best for you and they do not take your poor credit into consideration. They can also offer services to help you better understand the financial world. How you can get yourself back on track to paying off your debts and getting a contingency fund started.
Building your wealth can be a long process that takes many years. But with the right advice and a little self-discipline, you can say goodbye to unwanted debts forever. Meeting with a financial advisor on an annual basis can save you loads of money in the long-run. Getting the right advice to help you get out of debt with minimal impact to your credit rating. Helping you pay your debts without limiting your life completely is part of the benefits of meeting with a financial expert on a regular basis.