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Ask Dr. Don

Lease be gone

Dear Dr. Don,
I am leasing a '99 Isuzu Rodeo. I would like to turn it in and am wondering what the penalties will be. I am 1.8 years in on a four-year lease. I have also exceeded the included mileage. I understand there will be a cost. Could you advise me of what to expect?

Dear Jaime,
Your lease contract will be the final word on what you'll have to pay and what options you have to get out of the lease, but here are some things to consider.

Many lease contracts specify that the lease can be terminated early by paying a termination fee -- usually around $250. That's the easy part.

Here comes the hard part. The lessor then liquidates the vehicle at a wholesale price. If the wholesale price is less than the present lease balance, the lessee (you) is responsible for the difference.

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The determination of the wholesale value should be spelled out in the lease contract. The lessee may have the right to obtain an independent appraisal of the car's wholesale value from a qualified appraiser. Or the lessor may be required to obtain multiple bids to purchase the car at wholesale with the highest bid determining the lessee's early termination responsibility.

With less than two years in on a lease where you probably paid close to MSRP, owing the difference between the lease balance and the wholesale value is a pretty stiff price to pay to get out of the lease. Paying retail and selling wholesale is always an expensive proposition, but you've got two years worth of depreciation to consider that may not have been paid off with your lease payments and excess mileage to boot.

You may be able to sell the SUV at a retail price, trade it in or buy it outright for the present lease balance to end the lease. Buying, selling or trading in the vehicle will also mitigate the impact of the excess mileage or excess wear and tear, but you have to consider the sales tax implications of the transaction. Again, the lease contract will determine if you can sell the car out of the lease.

You can try to find someone to assume your lease. Swapalease or Ezoutezin provide fee-based services that will help you market your leased vehicle to people looking to assume a lease. But first read this Bankrate story on how to transfer a lease.

You might also want to take a look at this Bankrate special report on leasing.

The lease agreement will determine whether your lease can be assumed, the costs associated with a lease assumption and the extent of your financial responsibilities once the lease has been assumed.

-- Posted: Nov. 8, 2001

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See Also
Leasing laws
Key leasing questions to ask
Leasing costs worksheet


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