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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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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  • TJ
    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

    • BA
      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

    • TJ
      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

    • LS
      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

    • BA
      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

  • HS
    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

    • BA
      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

  • CW
    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

    • BA
      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

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

  • BA
    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

    • ED
      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

    • BA
      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

    • ED
      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

    • BA
      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

    • ED
      Apr, 2011
      ericka
      thank you. that's what i thought! thank you
      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