What Happens To Your Credit When You Break A Car Lease?
Maybe you’ve hit some hard financial times, or perhaps you’ve just decided you don’t like the car anymore. Either way, you are no longer going to be making payments on your car lease. But have you thought about what happens to your credit when you break a car lease? It is quite likely that you have. So we have some information that can help you understand what happens and how to keep it from destroying your credit.
What happens to your credit when you break a car lease?
Defaulting On A Lease
If you cannot afford to make payments anymore and stop sending your lender money, then they will eventually repossess the vehicle. In some states, such as Arizona, a lender can repossess your car only 31 days after a missed payment, so you are better off communicating with them if you are having financial difficulties. Failing to pay off your car loan will do major damage to your credit. You can always avoid repossession fees by surrendering the car to lender before it gets repossessed. This would report to your credit as a “voluntary repossession,” which is somewhat less negative than a “repossession,” but still negative. However, you would still be responsible for the remainder of the lease, the early termination fee, plus whatever fees you have to pay for damages (big and small) and mileage regardless of which option you choose. And if you cannot negotiate a settlement on that debt, your credit will still remain just as damaged.
Lease Transfer Or Buy-Out
If you can find someone else to take over your payments, you can terminate your lease early without taking a hit to your credit. However, there is usually a fee involved for the brokers conducting the transfer, but it’s likely worth it if it helps you out if otherwise your credit would be badly damaged. If you cannot find anyone to take your lease, you always have the option to give the car back and pay off whatever balance is still owed on the lease contract. This can help settle your debt without negatively impacting your credit.
Lease Roll-Over
This option does not come as the most highly recommended, nor is it the most practical option financially, but you can trade in your vehicle and roll the payments over to the new lease. How does this make sense? You’ll still be paying for the old lease in future payments, and you may still have to pay an early termination fee before that. Here’s how it makes sense: if you downgrade to a less expensive and/or more fuel-efficient vehicle, it can actually be a cost-effective move. On top of that, this may not hurt your credit.
Lender Negotiation
If you are in a financial position that leaves you unable to afford your lease, it’s a pretty safe bet that you cannot buy another car and perform the roll-over. So if you’re also unable to find someone to take over your lease, then at this point, your best move is to be honest with your lender and negotiate a credit-friendly agreement. If you talk to your lender, they may let you extend the terms of the lease to stretch out the payments to make them more affordable. This would give you more time to pay off the lease and keep your credit looking good.
Do you have any questions about what happens to your credit when you break a car lease? Let us know! Go Clean Credit is here to help.
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