Ask Bill your personal finance question

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?

Read full question
Bill's Answer
4.5
/5.0
(8 Votes)
Bills.com | Find Learn Save

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

4.5
/5.0
(8 Votes)
46 Comments
Recent Oldest
1500 characters remaining
  • L
    Lance,
    Jul, 2020

    I am needing to surrender my car due to the pandemic. I owe 7,500 left on the lease. I was wondering is there anyway to get that written off to where I don’t owe anything? I have a 2019 Kia Forte 15,000 miles on it. I understand I would have to pay a deficiency balance, would like to avoid that at all cost but if I only owe 7,500 left how would my car not be sold for more than that?

    • 35x35
      Daniel,
      Jul, 2020

      Lance, you are conflating the rules for a car loan and the terms of the lease. The company that leased you the car will enforce the terms of the contract which contains language about the penalties and fees if you don't pay as agreed. They were going to get the car back from you at the end of the lease. A person who makes all of his or her car payments would own the car.

      Pull out your lease agreement and look for "In case of Default" or something that fits your circumstances. It should make clear what consequences you can expect.

  • G
    Gabriel,
    Jun, 2020

    I am looking into surrendering my lease, I lost my job in the pandemic and I am not able to afford the lease anymore, I have a credit score of 802, how bad would the voluntary surrender affect my credit, specially if I might need to get another car in the near future, a year or so?

    • 35x35
      Daniel,
      Jun, 2020

      Gabe,

      When it comes to impact on credit scores from one event, the answer depends on what else is on the credit report. A general rule is that the higher the score, the bigger the impact of a serious derogatory item. In part, it depends on how the lessor handles the account and whether it is sent to collections. I would guess you would see a drop of 60 to 100 points.

      In addition to your credit score, your credit history is affected. That means if you have a score that bounces back into the excellent rating in 6-12 months, the event is assessed by creditors. If you default on a car lease, it makes sense that if you apply for another car lease your prior default would be a problem.

      The best course of action is to avoid the repo, if possible. Search for someone who can take over your payments and benefits from not needing to pay a lump sum up front. That person would need to pass the lender's credit standards. If you decide it is crucial to you to avoid the hit to your credit, you may even want to subsidize the taking over of your lease, if that kind of sweetened offer is needed to sway someone. Of course, you don't want to give them more than is necessary, but offering the person considering it a $25 per month subsidy could be meaningful.

  • C
    Christine,
    Jan, 2020

    I cosigned a lease for my grandson. He has now moved taking the car with him. I do not want to be responsible for the car or lease. How do I get out of it. I do not know where he lives

    • 35x35
      Daniel,
      Jan, 2020

      Christine, there is no way to achieve your goal. You were asked to co-sign to protect the financing company's interests, to ensure they get paid. They are not going to remove you from the agreement. You are financially responsible if payments are not made and your credit will take a hit if payments are late. To protect your credit make sure that you are aware of whether payments are being made or not by contacting the lessor.

  • C
    Connie Wilson,
    Jan, 2020

    I recently leased a vehicle and needed a co-signer. I just found out my job (care giver,paid cash) may be ending sooner than I expected. I need to surrender my vehicle. Will the co signer need to be involved? Im trying to avoid that.

    • 35x35
      Daniel,
      Jan, 2020

      Connie, the lessor required a co-signer to protect its interests in case you are unable to fulfil the terms of the lease. The co-signer will most definitely be involved. He or she will be responsible to make the payments; take hit on his or her credit report, if any payments are missed; and on the hook for any part of the debt that is not paid off.  

  • TJ
    Tom,
    Cleveland, OH,
    Mar, 2012
    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?
    • BA
      Bill,
      Mar, 2012
      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.
    • TJ
      Tom,
      Cleveland, OH,
      Mar, 2012
      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.
    • LS
      Lisa,
      Trotwood, OH,
      Apr, 2012
      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!
    • BA
      Bill,
      Apr, 2012
      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?
loading...