I just recently went through the major pains of ridding myslef of my leased automobile. I have read everything and talk to everyone on the subject, and have decided to publish what I have learned to help clear the road for others.
1. The lease is a legal binding agreement. Unfortunately you cannot just give back the vehicle and halt the payments without a problem appearing on your credit record as a repossession. It is not like a car rental.
2. Aquire the Payoff Amount to help Work Out the wisest decision. The title of a leased car is held by the bank or financial institution, and each makes available a “lease payoff amount”. This is the amount they will accept to transfer the title into the lease holder’s name or in the name of someone else.You cannot negotiate this ammount. when the financial institution receives payment there is obviously no more necessity to continue with/ the lease payments. However, don’t mistake this amount with the true marketvalue of the vehicle. the lease payoff amount is almost certainly going to be higher than true private party market value. Therefore, if you choose to sell the leased car to someone else, then you will probably take somewhat of a hit, and will have to pay out of pocket to make up the difference it is sold for and the required payoff amount. For example this 2008 Toyota Rav4 was leased, and the difference between the payoff and sale amount was $2300.
Some other options include buying another vehicle at a dealership. Be on your lookout, as this might not be the most beneficial decision. They will charge you for the new car plus your lease payoff amount minus the trade in value. Dealerships are good at mixing the numbers up. They will calculate the difference between the payoff amount and the trade in value and tack it onto the purchase price of the new car.
3. Figure out logistical issues. Because the title of the car cannot be mailed unless the payoff amount has been received, the person buying the car cannot immediately register the car in their name. Therefore, registration and insurance will fall upon you even after the purchaser fronts the money. Temporary tags cannot even be issued without the title. There is a way around this. Dealerships will facilitate the transaction and issue temp tags. It is not legal for them to do so, but I have spoken with many of them, and they are all willing to do it (with a fee of course). This way the new owner will be able to take possession of the car immediately without any liability lingering over you.
4. how taxes fit into the equation. The lease holder pays taxes at the beginning of the lease (its figured into the contract), which is essentially tax charged to the financial institution that you end up paying. Tax laws depend on the state, and each state has a different interpretation, but some states will collect taxes the second time around after the payoff amount is paid by the lease holder (when re-registering the vehicle in your name). Other states, in Maryland for instance, see it as double taxation and it is not required to be paid. No taxes are collected. Check with your state government to be sure. The good news is that selling directly to a third party circumvents any more taxes on the lease holder’s end regardless if your state double taxes or not.
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