A lease is a binding legal contract for the long-term rental of a vehicle. The lease calls for you to make timely payments as they are due. If you fail to make the payments, then there will be ramifications similar to if you do not make payments on a vehicle that you are purchasing.
Requirement for Payments with a Lease
When you finance and purchase a vehicle, you agree to pay a certain amount of money to the bank or finance company for a loan to purchase the vehicle. You can pay the vehicle off by paying the balance the next day if you like. A lease requires you to pay a certain amount of monthly payments of the specified amount. You do not own the vehicle and in theory there is no payoff amount on a lease. Most leasing contracts specify that if you default on the lease that you may owe the total of the remaining payments.
Non-payment of a Lease
You are in default when you do not make the lease payments as agreed. Expect to be contacted within 30 days of missing that first payment with a letter asking for the payment. This letter will also specify what the leasing company can do if you do not pay. In reality, the leasing company will probably contact you sooner, possibly as soon as one day after the missed payment. If you continue to not make your payments, your vehicle will be repossessed. This usually happens when you are three months past due. Late payments are reported to credit agencies as well.
After the Repossession
The leasing company may give you a certain amount of time to bring the lease current and pay the past-due payments. They probably will not accept a payment arrangement at this time and will want the past-due amount in full if they choose to do this at all. Unless it is stated in your lease agreement, they do not have to give you this opportunity. After this, the leasing company will sell the vehicle at auction.
Deficiency
After the sale, the leasing company will calculate an amount that you owe. This could be based on the total of the remaining lease payments and will also take into account the amount of the residual value on the lease. If the vehicle brings less than the residual value at auction, you may end up owing the difference between the sale amount and residual value. The formulas to calculate this amount are complex. The leasing company will probably then sue you for the amount that you owe and may pursue attachment of assets or garnishment of wages to collect.
Be Proactive
When you first determine that you are going to be late with payment, contact the lender to let them know. They may be able to defer some payments or temporarily reduce the payments. If you are not going to be able to make the payments going forward, it would be best to either sell the vehicle or find someone to take over the lease. Companies like Swap A Lease and Take My Payments specialize in finding people to take over a lease. You may be able to sell the vehicle yourself. Contact the lease company for a sale amount that would clear your obligation under the lease and to work out this arrangement. If you have no other option but to give the vehicle back, try to arrange that voluntarily with the leasing company.
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