Auto leasing is praised for typically being less expensive on a monthly basis than a traditional finance purchase. Additionally, auto leasing usually limits out-of-pocket expenses because the vehicle is covered by the manufacturer's warranty for the duration of the contract, although some long-term leases may exceed the warranty term. Nevertheless, there may come a time when you can no longer afford your lease payments. An auto-lease surrender is similar to a voluntary repossession in a traditional finance purchase.
Surrendering a leased vehicle can bring disastrous changes to your credit rating. Although a voluntary surrender is a cooperative alternative to a full-blow repossession, it isn't recorded differently on your credit report. In a nutshell, a lease surrender is a repossession, albeit a voluntary one. Expect your credit score to drop precipitously following a surrender. The exact deduction will depend on a host of other factors, including your current score.
Lenders, particularly auto lenders, will be cautious in the years following lease surrender. Many auto-finance companies and banks, even those considered subprime, will not initiate a new lease or auto loan for consumers until 12 months after repossession.
After voluntarily surrendering your leased vehicle, the bank or leasing company sells it. Usually, the vehicle is sent to a dealer-auto auction. Once the vehicle is sold, the net proceeds are applied to your balance at the time of surrender. This balance is not the same as your lease-end residual balance; it equals the lease-end residual plus the remaining payments on your lease contract.
Because of the high-initial depreciation of new vehicles, it's likely the sell price will be much lower than your total balance. In this situation, a deficiency balance is created. You're responsible for paying this balance. In many cases, the lender will attempt to work out a payment plan with you. If you cannot pay the deficiency balance, the lender may place a judgment against you. An early-termination fee is also applied to the deficiency balance; the amount varies but is listed in your contract.
The deficiency balance of a voluntary surrender is likely to be lower than it is in an involuntary repossession. When the lender is forced to hire recovery agents or investigators to locate you or the vehicle, the cost is usually added to the deficiency balance.
The loss of transportation may be the direst consequence of lease surrender. It's unlikely you'll be able to finance a vehicle immediately after surrendering the vehicle. Without steady transportation, it may be difficult to get to and from work or run errands. You'll need to plan accordingly ahead of time. Two possible solutions are paying cash for a vehicle or purchasing one from a dealer that offers in-house financing for consumers with credit troubles, aka buy-here-pay-here.
