The Consequences of Defaulting on an Auto Lease?

You should consider all other options before defaulting on an auto lease. For example, you can trade-in the lease for a less expensive one, buy the car by taking a new loan, or look for other early termination exceptions. If these options are not possible for you, then you may consider simply turning in the automobile before your lease is over, which is technically defaulting. There will be many consequences to this action.

Terminating a Lease Early is Defaulting

When you sign an auto lease, you agree to make a number of payments across a given time period. The sum of all of these payments essentially amounts to a loan. When you terminate the lease early, you have only repaid a portion of that loan. This is like settling a debt before you have repaid it. Turning in a car 3 years into a 6 year lease means you are settling the debt for only 50% of what you owe. First, not all dealers will allow you to do this without fees, fines and other penalties. Next, if you do succeed in simply "defaulting" on the lease, then you will find other, perhaps more severe, consequences.

Credit Score Repercussions

Your credit report will reflect a default on an existing loan contract. The report will not make any real distinction between this unpaid debt and unpaid debt on an actual monetary loan. This negative credit report is a tool leasing agents use to discourage borrowers from defaulting on the lease. When a leasing agent allows you to use a car, they realize the car's value will depreciate significantly. This will affect the future revenue they can gain from the same vehicle. As such, when you default on the lease, they will make even less off the vehicle than they would otherwise earn if you paid your lease in full. To discourage this loss, they will threaten you with credit problems after the default. These credit problems can make it hard to find another lease in the future, get a loan, or may even raise the interest rates on any of your existing variable rate loans.

Legal Repercussions

Since a lease is a legal contract, you will find there are repercussions to simply breaking that contract. Most of these will take the form of fines and penalties. The fines can be as high as the remaining lease payments in some cases. You cannot avoid paying these penalties. If you do, the leasing agent has a legal right to sue you for the remaining sum you owe. The leasing agent may even be able to prevent you from defaulting if you have the actual ability to continue making payments. Basically, you cannot leave a contract simply because you would like to do so. You need to have a justification for exiting, such as financial hardship that prevents you from making your lease payments. When a leasing agent does not feel you have a valid reason to break the lease, you may have to appear before a judge to show you do.


Need an Auto Loan? Get a Free Quote Here!