Information on voluntary surrender of lease

If I have to return my vehicle lease how will that affect effect me buying a house?

If I have a low credit score and i have to return my vehicle lease because i cannot afford to keep it how will that affect my credit score? And how will it effect me buying a house?

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Bill's Answer
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Bills.com Team
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Most lenders treat the voluntary surrender of a vehicle the same as repossession. Despite this fact, surrendering can benefit a borrower by saving him a significant amount of money in repossession costs. When a leased vehicle is voluntarily surrendered, the lender will usually sell the vehicle at auction, and then apply the money received at auction to the balance owed on your auto lease. If the lender receives less money at the auction than you still owe on the lease, the difference is called a deficiency balance. Generally speaking, you would be liable to the creditor for the deficiency balance, which means you will probably still owe money to the creditor even though you no longer have the vehicle. The creditor may be willing to negotiate a repayment plan or lump-sum settlement with you to repay the deficiency, but if you fail to make arrangements with the creditor, the creditor could sue you to obtain a judgment against you, which could result in wage garnishment, a lien on your property, and/or bank levies, depending on the laws in your state.

Because deficiency balances on automobile leases can cause a significant financial hardship, you should work diligently to prevent the vehicle from being repossessed, if at all possible. First, you should contact the creditor to discuss options to bring the lease current, such as deferral of the missed payments. If the lender will not work with you in bringing the lease current, you should look into borrowing the money needed to pay the deficiency. If you cannot borrow the money to repay your missed payments, or if you cannot afford to continue making your regular monthly payments, you may have no choice but to surrender the vehicle or let it be repossessed, in which case you should contact an attorney to discuss the laws in your state regarding the collection of deficiency balances, and what options are available to you to resolve the debt. For example, many consumers whose vehicles are repossessed find that filing bankruptcy can help solve their financial problems; I encourage you to visit the Bills.com Bankruptcy Information page to learn more about bankruptcy and the options available to you. In addition, a debt resolution program, such as debt settlement, may be able to help you negotiate a settlement with you creditor. To learn more about bankruptcy alternatives, I invite you to visit the Bills.com Debt Help page.

A voluntary surrender of your vehicle will likely appear on your credit report as a repossession, or possibly as a voluntary repossession, meaning that the surrender will likely have a strong negative mark on your credit profile. If you simply cannot afford the vehicle, you may have no choice but to surrender the vehicle and worry about the credit impact later. If you do nothing, the vehicle will be repossessed anyway, which will also damage your credit and could cost you several thousand dollars in additional repossession fees.

Like any negative mark on your credit profile, surrendering your vehicle could cause you problems if you are attempting to purchase a home. With the tightening of underwriting standards following the recent implosion of the sub-prime mortgage market, aspiring homeowners with credit problems are finding it increasingly difficult to obtain the financing they need to buy a home. If your credit is otherwise solid, the voluntary surrender of your vehicle may not prevent you from obtaining a mortgage, but it will likely make the process much more difficult. Again, if you cannot afford the lease payments, you likely have no choice but to surrender the vehicle, but you should know that it could cause you problems in your search for a home. However, you should also keep in mind that a voluntary surrender or repossession only stays on your credit report for seven years, so this lease should not permanently damage your credit rating. In addition, as time passes, the negative impact of the surrender on your credit score should diminish, so even if you cannot qualify for a mortgage now, you may be able to in a few years if you work hard to keep your other credit accounts in good standing. If you would like to learn more about credit, credit reports, and credit scoring, I encourage you to visit the Bills.com Credit Information page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

38 Comments

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  • 35x35
    Mar, 2012
    Tom
    Hi, I had a lease with Ford where I was over mileage a lot. Now Ford want's $11,100 for being over. I lost my job after making a few payments and couldn't pay any longer so Ford shows this a charged off on my Credit report. I was also behind on a few other credit cards but I am now getting caught up and paid ontime. I know the good credit cards will take a while to show good on time payment history and I am willing to wait for that. But Ford has now sent my account to collections. How bad does this over mileage for the lease look on my credit and is there anything I can do to qualify for a home loan anytime soon?
    0 Votes

    • 35x35
      Mar, 2012
      Bill
      There are two separate issues that hinder your ability to qualify for a mortgage. The first is your credit score. With the derogatory items you listed on your credit, it will take your score some time to rebound. How long depends on the amount of accounts that never went into bad standing and the number of accounts that are now in good standing.

      The second issue that harms your chances to qualify for a loan is the presence of the large collection account. You need to resolve that. A lender's underwriter will require that it be paid or settled, before granting you a loan.
      0 Votes

    • 35x35
      Mar, 2012
      Tom
      Thanks Bill, I made a call to an attorney before I wrote this and he called me back. He thinks there may be hope in turning this around with Ford and negotiating a payment plan and getting ford to settle and reverse the charge off on my credit report due to my job loss and other factors. I will keep you updated on the progress of my situation so all your readers will know what actually happened.
      0 Votes

    • 35x35
      Apr, 2012
      Lisa
      I had a car loan with a credit union and subsequently returned the vehicle while still owing. The bank sold the bank at an auction and received less than balanced owed. I agreed to make payment arrangements on the difference and began paying the balanced owed. This is showing up on my credit report as a negative account as a repossession and is now effecting me in getting employment. I am not and had not been delinquent in making payments — the vehicle happened to be my ex-husband's and in my name — I just couldn't afford the payments and decided to return the vehicle before the bottom fell out. I'm frustrated because now I'm screwed even though I'm paying the balance owed!
      0 Votes

    • 35x35
      Apr, 2012
      Bill
      Out of curiosity, what type of work are you doing or field are you in where a credit check is required as part of the hiring process?
      0 Votes

  • 35x35
    Jan, 2012
    Harley
    if you surrender your lease and there's damage, for example a deep dent on the bumper, are your responsible for it?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      Your liability depends on the terms of the lease. It is my guess that you're responsible, but review your lease paperwork.
      0 Votes

  • 35x35
    May, 2011
    Connie
    I have a leased vehicle that I am turning back in in June. My husband is the co signer on the vehicle and my grand mother actually has it in her name for us. My question is that we are like 50, 000 miles over our mileage and I want to know if my husband goes bankrupt on this vehicle would my grandmother be responsible for the amount that is due?
    0 Votes

    • 35x35
      May, 2011
      Bill
      Because your grandmother is the primary signatory on the lease, she will almost certainly have liability for the mileage overage, despite the co-signer's filing for bankruptcy. Consult with a bankruptcy lawyer for a more in-depth analysis of the lease contract, and how the co-signatory's bankruptcy will impact the primary's liability.
      0 Votes

    • 35x35
      May, 2011
      Connie
      Thank you! That is what I thought.
      0 Votes

  • 35x35
    Mar, 2010
    Ania
    I need to terminate early my car lease( 3 mos left and i am one month behind). Will the resulting deficiency balance be discharged if i file for ch 7, along with my other unsecured debt? or do I have to wait until I actually file and list the car lease along with the other accounts? I will be filing shortly.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Terminate the lease, and then file for bankruptcy. You can reverse the order but you will be creating extra work for your attorney, which may result in increased legal costs. Before you terminate the lease, however, consult with your bankruptcy attorney.
    0 Votes

    • 35x35
      Apr, 2011
      Ericka
      if i turn in a lease on my maturity date but i still owe money to the finance company, can they report it on my credit as a repossession? I was told this.
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      I believe what you are referring to is called a "lease deficiency." Legally, a lease deficiency is not the same as a repossession in any form, so it would be incorrect for the creditor to report a lease deficiency to the consumer credit reporting agencies — Equifax, Experian, and TransUnion — as such. Unfortunately, creditors report incorrect information to the credit reporting agencies all of the time, either intentionally or though negligence. Do you have a record of the creditor stating would take this action? Perhaps an e-mail message or a letter? If so, save this, as it is evidence of malice should the creditor follow through on this threat.
      0 Votes

    • 35x35
      Apr, 2011
      Ericka
      Ok,thank you!!! That's what I thought! They told me that over the phone when i acknowledged the fact I still owed money and requested a payment plan. do you know if they eventually settle with me if I still owe payments on the car and miles?
      0 Votes

    • 35x35
      Apr, 2011
      Bill
      Let us say for the sake of argument you do not pay the lease deficiency. The creditor may sell your collection account to a lackadaisical collection agent who calls you a few times, and then allows your collection account to languish uncollected. Or, the creditor may sell your collection account to an aggressive collection agent bent on collecting the account at all costs, including filing a lawsuit against you in which it obtains a judgment, and then uses wage garnishment, account levy, or a lien to collect its judgment. Or, the creditor (or a collection agent) may call you and offer you a settlement for 20 cents on the dollar, which you happen to possess, and you settle the account amicably with a pay-for-delete that removes the derogatory from your credit report.

      Any of the scenarios I mentioned are a possibility. Which is in the cards for you depends on your skills as a negotiator and how rabid or reasonable the caller happens to be. I realize this is not the answer you were seeking, but predicting the behavior of creditors is not one of my skills.
      0 Votes

    • 35x35
      Apr, 2011
      ericka
      thank you. that's what i thought! thank you
      0 Votes

  • 35x35
    Mar, 2010
    Emjean
    My lease is ending in the next month I have 1 more payment but I would like to continue my payments and purchase the vehicle. I have never missed a payment and this is my second lease. I don't think my credit score is great but I have paid faithfully and would like to keep the vehicle what can I do?
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Contact the lease company and state what you did here. The company will almost certainly offer a purchase option.
    0 Votes

  • 35x35
    Mar, 2010
    Bill
    Under bankruptcy law you cannot have your cake and eat it too. If you do not reaffirm the lease by executing (signing) a reaffirmation, you must return the vehicle. If you do not reaffirm the lease, continue your payments, and do not return the vehicle, a court will construe your behavior as "constructively" reaffirming the lease. Again, you cannot have your vehicle (your cake) and yet have the contract be discharged in bankruptcy (eat it too). Make your choice: Return the vehicle when the bankruptcy is discharged and have the contract be nullified at that point, or keep the vehicle and be bound by the lease terms. The facts you shared are unclear to me so I will not comment on your questions.
    0 Votes

  • 35x35
    Mar, 2010
    Marc
    Post 7 by Sam....had Ch 7, have auto lease continuing, not reaffirmed. I continue to pay monthly. I understand if lease not reaffirmed,I do not owe the car company anything monthly. QUESTION - If under these circumstances, there is excess mileage and excess wear and tear, am I liable to pay these 2 charges when I turn in the car, or are they gone too because lease not reaffirmed? I undersatnd I don't owe the monthly payments, but what about these 2 aformentioned "excess charges at the end?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    As discussed above, if you return the car before the end of the term you will be responsible for the lease balance, which is the unpaid portion of the adjusted capitalized cost of the lease. If you return the vehicle with more mileage than you contracted to drive, you are liable for the agreed-upon mileage costs. If you reach the end of the lease term with a balance, or if you return the vehicle before the end of the lease term resulting in a lease balance, this amount you owe is an unsecured debt. Examples of unsecured debt include a credit card balance, medical bill, payday loan, or deficiency balance. Unsecured debt can be discharged in bankruptcy, generally speaking.
    0 Votes

  • 35x35
    Feb, 2010
    Lisa
    I have a lease on my vehicle that is up in August. Due to some previous financial hardships I have already extended this lease once and I am still 1 1/2 months behind in payments. I honestly cannot afford to keep this car, oh and I am well beyond my contract miles as well. What implications would I see if I volunatarily turned this car in now? What will happen if I turn it in and file for bancruptcy? Over the last year my credit has gone down a lot and really can only go up from here. Please give some advice? Thanks.
    0 Votes

  • 35x35
    Aug, 2009
    cyril
    I have a lease 2008 honda civic that was rear-ended recently. As I am looking to get out of the lease and have tried everything without much success, I am thinking of using the money for its repairs to purchase something cheaper and do a voluntary surrender as is. How much would this hurt me? Can one trade it in as is for a down payment on another car or outright purchase of a used car? Please help
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    You are wise to try to save money. However, your ideas for doing so require more thoughtful consideration. A lease is an agreement where the owner of property allows someone to use it for a period of time in exchange for money. A vehicle lease usually contains language that requires the lessee to maintain the vehicle properly, make repairs, keep insurance, and not drive more than a certain number of miles annually. A lessee does not have the right to sell the property (that exceeds his/her rights). Therefore, your idea to trade the Civic to buy a cheaper car will not be successful. Also, if you reach the end of the term without repairing the collision damage you will be liable for the lessor's expense of repairing the car. Finally, if you return the car before the end of the term you will be responsible for the lease balance, which is the unpaid portion of the adjusted capitalized cost of the lease.
    0 Votes

  • 35x35
    Aug, 2009
    Mark
    Hypothetically, if you terminate a contract before the end of its term, then the breaching party must pay the agreed-upon damages. However, if the damages are punitive or unreasonable, then most courts will rewrite the contract and find a reasonable amount of damages the breaching party must pay. The real question here is, are the early termination fees reasonable? If a court finds that they are, then they are legal. If they are punitive, then a court will find that they are not.
    0 Votes

  • 35x35
    Aug, 2009
    MH
    What about surrender fee's at lease end, are they legal? Even 1 month before lease ends, all payments made, etc.?
    0 Votes

  • 35x35
    Jul, 2009
    Mark
    What I'm about to write is more for the benefit of other readers, because you've already learned your lesson: Do not sign an agreement you don't understand. You need to go to a good contracts attorney and ask him or her to decipher your lease agreement. Then, if you make no headway with either the finance company or the dealer, let your attorney talk with both.
    0 Votes

  • 35x35
    Jul, 2009
    Suzy
    I have a leased vehicle with over a year in payments remaining. I have a financial situation that demands I reduce my monthly payments by at least $500.... I have no choice but to seriously consider a voluntary surrender of my lease. I am very confused by the conflicting information I have recieved.: 1) From finance company: My "remaining balance" is $23,000 which includes all lease turn in fees. They will sell vehicle at auction and anything they get will be applied to the $23,000. I have a friend in the industry telling me my car sells for over $30k at auction, which would more than cover my "remaining balance". Sounds too easy. 2) from Dealer: don't believe the finance company. I am responsible for the "payoff" of the vehicle (which is $42k and is the "payoff to own" I am quoted when I call). This amount plus the "bogus fees" they will charge me at auction (towing, etc.) is truly my obligation if I voluntarily surrender the lease. Help!! This same dealer misrepresented my lease among other issues when I took possession of the car... I don't know who to trust and if I am going to consider ruining my good credit then I want to be sure I am not both ruining my credit and creating more debt. Any advice is greatly appreciated.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    Start by determining how much a lease trade is going to cost you. Depending on your particular lease company, you’ll probably have fees associated with trading in your lease. You may have an early termination fee, fees for going over the mileage allowance, fees for the condition of the car or other penalties. Consult your existing lease for any language governing a lease trade, including early payoff and termination penalties. No matter what a dealer tells you, the only organization that can change or end your lease is the institution that holds it. Unscrupulous dealers use a number of lease trade scams to run up fees and penalties if you trade in your lease, all the while telling you they’re getting you a deal. Consult your leaseholder directly so you know the cost for a lease trade.
    0 Votes

  • 35x35
    Apr, 2009
    Gillian
    I have a current car lease and have never missed a payment; however, I may lose my job July and I want to know if I can get out of the lease, or, if I get a new lease for less money and the new car company buys out my old lease is that an option. Any help would be appreciated.
    0 Votes

  • 35x35
    Jan, 2009
    Sam
    Your vehicle was included in your Chapter 7 bankruptcy despite the fact that you continued making the payments—had you wanted to keep the vehicle under the terms of your agreement with the leasing company, you would have needed to sign a reaffirmation agreement to “reaffirm” on the debt. A reaffirmation agreement outlines the terms under which a secured creditor will allow you to keep a vehicle that was included in a bankruptcy filing—usually this simply means continuing making your monthly payments as originally agreed. However, since you did not sign a reaffirmation agreement, your debt to the leaseholder was very likely discharged, meaning that you may not owe the company anything, but you are also not legally entitled to keep the vehicle. Since this is a lease, and since the lease term is nearing its end, the best thing to do may be to return the vehicle. A repossession should not report on your credit report; rather, the account should appear as discharged in bankruptcy. I strongly encourage you to consult with your bankruptcy attorney to discuss this matter and to determine the best way to proceed. Your attorney should be able to tell you what action you should take to rectify this situation.
    0 Votes

  • 35x35
    Jan, 2009
    Denise
    Went thru a bankrupcy in 2007. Have a leased vehicle which was listed as a part of that Chpt 7 filing. Received discharge 11 months later. Called bank mailed copy of discharge. They requested I sign a reaffimation of debt. I did not. I continued to make all payments during and after the bankrupcy.I have all bank statemts and cancelled checks. I am now at the end of the lease called to check on retun procedure was told car was in repo status. Shocked and very angry. Called back to speak to supervisor or manager never allowed to transfered from agent to agent. Should I turn this car in, as lease in completed. Will I be charged with voluntary repossession.
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    You will have to speak to your lender to see if they are willing to release the vehicle if you make all the overdue payments. As for the balance, you will owe whatever the balance of the lease payments plus repossession fees etc.
    0 Votes

  • 35x35
    Dec, 2008
    Kevin
    i was in a leased vehcile and they reposessed it. I am wondering 2 things. One if there is anything i can do now to stop this process from happening meaning paying the past due amounts. And two what will be my balance that i owe?
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    There is no set method to negotiate. You just have to state the facts as they are and let them know that the car is worth only so much, but remember that regardless of the current value of the you still owe them the total loan amount, meaning if there is a shortfall in the amount even after the vehicle is repossessed, you still owe them the balance on the loan. The only difference now is that the debt is unsecured with out any collateral on it, just like credit card debt.
    0 Votes

  • 35x35
    Sep, 2008
    sylvia
    I have a car that I was paying until it broke down on me. I'm upside down on the loan and the amount to get it fixed is close to the cars worth, very close, about 1000 off. I called and tried to work out arrangements to get a new loan since it was through a credit union and was told that the market is making it harder for people like me to qualify for a loan. I thought of bankruptcy, but instead called and spoke with them telling them to come get the car and work on a settlement with me. The thing is I don't want to pay anymore than 1000 on a settlement since the car is worth 3000 and I still have 7000 left to pay how can I negotiate something that wont cost me so much out of pocket?
    0 Votes

  • 35x35
    Sep, 2008
    Lisa
    Thank you Bill your information was very helpful.
    2 Votes