Leasing a car is a popular option, offering the chance to drive a new vehicle without the long-term commitment of buying. However, it’s crucial to understand the financial responsibilities that come with a lease agreement. Just like with a car loan, failing to keep up with your monthly payments on a leased vehicle can lead to serious consequences, including repossession. When you sign a car lease, you enter a contract outlining your obligations and the leasing company’s rights. This contract, combined with state laws, dictates what can happen if you fall behind on payments, and it’s often less forgiving than many people realize.
One of the most immediate and concerning outcomes when you default on a car lease is the risk of repossession. Unlike some other forms of debt, a leased car can be repossessed swiftly. In many jurisdictions, the leasing company (the lessor) doesn’t need to provide advance warning or obtain a court order to take back the vehicle. As long as the repossession process doesn’t involve breaching the peace – meaning they can’t physically harm you or damage your property to get the car – they are legally entitled to reclaim the vehicle. This can happen with little to no notice, leaving you without transportation and facing further financial repercussions.
Beyond losing access to your car, repossession of a leased vehicle often triggers significant financial liabilities. It’s not simply a case of the car being taken back and the debt being cleared. Instead, you’re likely to face what’s known as a “deficiency.” A deficiency is the amount you still owe to the leasing company even after they’ve repossessed and sold the car. After repossession, the lessor will typically sell the vehicle, often at auction, to recoup some of their losses. However, the sale price rarely covers the full amount you owe under the lease agreement.
The calculation of this deficiency is usually detailed in your lease contract. Generally, it can include a range of charges, which can add up quickly. You might be responsible for:
- The remaining lease payments: This is the sum of all the payments you would have made if you had continued the lease until its original end date.
- Past-due payments: Any monthly payments you have missed prior to the repossession.
- Repossession costs: Expenses incurred by the leasing company to repossess the vehicle, such as towing and storage fees.
- Excess mileage charges: If you’ve exceeded the mileage limits stipulated in your lease contract.
- Excess wear and tear: Charges for damage to the vehicle beyond what’s considered normal wear and tear.
- Costs associated with selling the car: This can include auction fees, cleaning and repair costs to make the car saleable, and other related expenses.
The deficiency amount is essentially the difference between what you owed under the lease and the money the lessor received from selling the repossessed car, plus all the associated costs. It’s crucial to understand that the sale price at auction is often significantly lower than the car’s market value, which can lead to a substantial deficiency balance.
If you anticipate difficulty in making your lease payments, or if you’ve already missed payments, proactive steps are crucial. The first and most important action is to thoroughly review your lease agreement. Pay close attention to the sections that define what constitutes a default and what the consequences of default are. Understanding your contractual obligations is the first step in navigating potential issues and making informed decisions.
Preventing repossession should be your priority if you wish to keep your leased vehicle. One of the most straightforward ways to avoid repossession is to catch up on any missed payments as quickly as possible. Some lease agreements, and sometimes state laws, provide a “right to cure” the default. This means you might have a window of opportunity to reinstate your lease by paying the overdue amounts, along with any associated late fees and repossession expenses incurred up to that point.
If you’re struggling to afford your payments long-term, contacting the leasing company directly to discuss your situation is advisable. Lessors are sometimes willing to work with lessees to avoid the hassle and costs of repossession. You could explore options such as requesting a temporary grace period, where you are allowed to postpone payments for a short time, or modifying the lease terms to lower your monthly payment. Modifications might include extending the lease term, although this could mean paying more interest over the life of the lease. Crucially, if the lessor agrees to any changes to your lease terms, ensure you get the agreement in writing to protect yourself and avoid misunderstandings later.
Another option to consider when facing lease payment difficulties is voluntary repossession, also known as voluntary surrender. This involves you voluntarily returning the car to the leasing company, rather than waiting for them to repossess it. While it might seem like a proactive and less confrontational approach, it’s important to understand that voluntary repossession doesn’t automatically eliminate your financial obligations.
Unless you specifically negotiate terms to reduce or eliminate the deficiency, voluntarily returning the vehicle might not save you from owing money. In fact, you could still be liable for the deficiency balance, just as you would with an involuntary repossession. Therefore, if you are considering voluntary repossession, it’s vital to negotiate with the lessor beforehand to try and reduce or eliminate the early termination charges and potential deficiency. Any agreement reached should be documented in writing to be legally binding.
Even after a repossession has occurred, you might still have options to mitigate the financial damage. One possibility is to offer to settle the deficiency debt with the leasing company for a lower amount than what they claim you owe. Leasing companies may be open to accepting a reduced lump-sum payment to avoid the time, expense, and uncertainty of pursuing full debt collection, potentially through legal action.
However, be aware that settling a debt for less than the full amount can have tax implications, and it will likely negatively impact your credit score. It’s important to weigh the pros and cons carefully and potentially seek financial advice before pursuing this option.
Depending on your state laws and the specifics of your lease agreement, you might have a chance to get your leased car back even after repossession. Two potential avenues are reinstatement and repurchase. Reinstatement typically involves catching up on all missed payments, fees, and repossession costs, effectively restoring the original lease agreement. Repurchase might be possible if the lessor is required to notify you of the date and time of the auction where they will sell the repossessed vehicle. You might be able to bid on and repurchase the car at the auction.
Additionally, it’s worth asking the leasing company if they would be willing to return the vehicle to you under certain conditions, which could involve a repayment plan or revised lease terms. The best course of action will depend on your financial situation, state laws, your lease contract, and the lessor’s willingness to cooperate.
Navigating car repossession and deficiency balances can be complex, especially considering the legal aspects involved. Consulting with an attorney who specializes in consumer law or debt collection is highly recommended. An attorney can help you understand your rights, review your lease agreement, and advise you on the best course of action for your specific situation.
You might have legal defenses against a deficiency judgment. While legal protections for leased vehicles are sometimes less extensive than those for financed car purchases, defenses may still exist. For instance, you could argue that:
- You were not actually in default of the lease agreement.
- The lessor failed to provide you with a legally required “right to cure” notice before repossession.
- The repossession process involved a “breach of peace.”
- The lease agreement did not clearly and conspicuously disclose your liability in case of early termination, as required by the federal Consumer Leasing Act.
- The method used to calculate the deficiency is unreasonable or not in accordance with the lease agreement or state law.
An attorney can assess whether the lessor has acted legally and can help you challenge any illegal actions, potentially assisting you in getting your car back or reducing the amount you owe.
Further Reading
I Can’t Afford My Car Payments. Can I Give the Car Back to the Bank?
Defenses to Car Repossession Deficiency Lawsuits
Will I Owe Money After My Car Is Repossessed in Florida?
