If you surrender your leased vehicle without paying for the early termination, it's known as a voluntary repossession. If the bank seizes your car for non-payment, the instance is known as an involuntary repossession. Both terms affect your credit score and future lending opportunities just the same.
Paying Fees or Repossession
Call your leasing bank to find out how much it costs to terminate your lease. Depending on how far along you are in your lease contract, you might have to pay a termination fee in addition to any payments due for the remaining of the contract term. If you can't afford to pay at all, you can voluntarily return your vehicle by calling your bank to find out where to drop off the car. If you don't pay your payments or contact your bank, it will hire a repossession company to seize the vehicle.
After Repossession
If you pay the lease termination fee to the bank, you dont need to do anything more. If the car was repossessed, the bank will resell it. Once the bank resells the car, the bank will contact you to let you know how much you owe toward the car's balance which is no longer just the lease amount, but rather the total cost of the car. If the car's sale price doesn't satisfy the vehicles purchase balance and repossession fees, you must pay the remaining balance to the bank. If you don't, the bank can pursue court action and garnish your wages. If you settle the remaining balance, you must pay taxes on the portion of the balance you didn't pay.
Credit Report and Score
Repossession damages your credit. It makes no difference to your credit score or future credit providers whether the vehicle was voluntarily or involuntarily repossessed. If you dont pay the balance due to the bank, it may pursue a judgment to garnish your wages, which is also listed on your credit report. Furthermore, if you settle the amount due on your loan and don't pay your taxes, the IRS can issue a tax lien, which results in another derogatory mark on your credit. After your credit is damaged, obtaining another loan or line of credit will prove difficult.
Before You Surrender the Vehicle
You originally had good to excellent credit to obtain approval from a leasing bank. Don't surrender your vehicle before you research other lease-end options; you may be able to avoid a negative credit rating. Consider letting another person assume your lease, if your bank allows it. Check with your bank to find out whether you can sell your car while you don't own it, you might be able to sell it to a third party, depending on the rules of your bank and state. Ask your leasing bank to defer one or more lease payments. Many banks can work with borrowers who are experiencing financial hardship.
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