Does a Debt Settlement Affect a Car Lease?

Leasing banks don't cancel contracts because of other credit issues that occur during the contract period. Once approved for a vehicle lease, expect to carry out the terms of your contract, which won't list your responsibility for other debts. Depending on your credit position, the debt and settlement listed on your credit report might decrease your chances of obtaining another lease approval in the future.

During Your Lease

If you've already signed a lease contract, other debts won't affect your current lease. When you first initiated your contract, the leasing bank obtained a copy of your credit report and determined whether to approve or deny your lease. If you had previous or recent unpaid debt on your credit report, the leasing bank probably wouldn't have approved your application. Once you sign your contract, you'll lease your car by the terms stated in the contract unless you fail to make payments. Even if you don't pay any of your bills during the lease period, you'll abide by your original contract terms.

Before a Lease

If you plan to pursue a lease after paying a settlement, your application might be declined, but not because you settled the debt. If you settled a debt, then you were most likely behind on payments. Unpaid debts reported to the credit bureaus lowers your credit score and increases your lending risk, although the impact of an unpaid debt affects people differently. Your credit score might not drop significantly if you have numerous loan accounts and a spotless payment history. If you have numerous unpaid accounts or limited credit, you probably won't obtain a lease approval.

Other Options

Leasing requires good credit, while financing options offer more leniency for past credit issues. If you can't obtain a lease approval because of your credit, pursue a loan instead. Depending on the severity of your late payments or past due account balances and how much the instances affected your credit score, you might pay a higher interest rate and a large down payment or face a shorter loan term restriction to decrease your lender's risk. You might still obtain a lease or unrestricted loan approval if you use a co-signer.

After Your Lease

If your credit suffered during the term of your lease contract and you've paid the leasing bank on time, you still probably won't obtain another lease approval until your credit improves. Even with a good payment history, a leasing bank requires a new credit application and reviews your credit again before approving another lease. Settling the account also shows lenders you didn't pay the amount you promised even though you made an effort to pay the debt off.