Glossary

Early Termination Fee

Written by JaredReviewed by JaredLast reviewed 2026-08-07

What is an early termination fee on a car lease?

An early termination fee is the charge you owe for ending a car lease before its scheduled term is finished. It differs from a lease buyout, where you pay to own the car; with early termination, the leasing company takes the car back, sells it, and bills you the shortfall between what the lease still expected to collect and what the sale brought in. The Federal Reserve's own consumer leasing guide describes the formula in plain terms: the remaining lease balance minus the vehicle's realized value, what the leasing company actually gets for the car at disposition.

How is an early termination fee calculated?

It typically equals the remaining lease balance minus the realized value of the vehicle, per the Federal Reserve's consumer leasing guide. The remaining lease balance is a figure similar in shape to a payoff quote, built from the residual value the lease was structured to recover plus whatever base payments are still unpaid. The realized value is what the leasing company actually gets for the car, whether through a wholesale sale, an auction, or another disposition method it chooses.

Here is that formula on a hypothetical 36-month lease, computed with the site's lease calculator rather than estimated by hand: a $32,000 MSRP car, a $30,000 negotiated selling price, a 58% residual, and a 0.0028 money factor, with 12 months left on the term.

The remaining lease balance stays fixed regardless of how the car is sold, $24,005.00 in this example. Only the realized value moves, and a lower sale price raises the fee dollar for dollar, since the leasing company is only recovering what it can actually get for the car. Most of the remaining base payments inside that balance are still rent charge, the interest the lease already priced in, not principal being erased just because you are leaving early.

What does Regulation M require a lease contract to disclose about this fee?

Regulation M, 12 CFR 1013.4(g)(1), requires every lease contract to state the amount of the early termination charge or describe the method for calculating it, and that method has to be reasonable. Section 1013.4(g)(2) goes further and requires a specific warning printed in the contract itself: "You may have to pay a substantial charge if you end this lease early. The charge may be up to several thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater this charge is likely to be."

A related provision, 12 CFR 1013.4(k), requires the contract to disclose your liability, if any, for the difference between the residual value of the car and its realized value, the same residual-versus-realized-value gap that drives the early termination charge. These disclosures exist so the charge is not a surprise buried in fine print, though the exact dollar figure still depends on numbers, like the realized value, that are not fixed until the car is actually sold.

Can you know your exact early termination fee before you decide?

Not precisely, and that is the honest answer. The realized value, what a trade-in appraisal, an auction, or another wholesale sale actually brings for the car, is not something you or the leasing company can know for certain until the car is disposed of, so any estimate you get before that point is just that, an estimate.

Ask your leasing company for a written early termination quote before you commit to ending the lease, the same way you would request a payoff quote before an early buyout. Quotes can vary and typically expire within weeks, so get a fresh one close to when you plan to act rather than relying on an old number. For the full ladder of exits, including three options that usually cost less than termination, see how do you get out of a car lease early.