How to Handle Auto Lease Payments If Facing Financial Hardship[yoast-breadcrumb]
How to Handle Auto Lease Payments If Facing Financial Hardship
I know from experience that car troubles can really throw your finances for a loop. When I was in college, my transmission died and I had no savings to get it fixed. I had to scrape together money from family members just to get my car back on the road so I could get to my job. It was incredibly stressful!
So if you’re struggling to make your monthly auto lease payments right now, I totally understand. I’ve been there! This article will walk you through some steps you can take to get your auto lease back under control during tough financial times.
Communicate with Your Lender
The first thing you should do is contact your auto lease company and explain your situation. Let them know you’re experiencing financial hardship and are worried about falling behind on payments. The sooner you reach out for help, the more options they’ll likely have to work with you.
According to the Consumer Financial Protection Bureau (CFPB), your lender may offer solutions like:
Affordable payment plans with lower monthly payments
Changing your due date to better align with your pay schedule
Temporarily pausing payments through a deferment or forbearance program
The CFPB also recommends getting any agreement for altered payments in writing to avoid miscommunications down the road
Don’t wait until you’ve missed several payments and are facing repossession. At that point, your lender will have fewer incentives to help you out.
If your credit score is still in decent shape, refinancing your auto lease with a lower monthly payment may be an option. Online lenders like Lightstream offer auto lease refinancing loans with rates as low as 3.99% APR.
To qualify, you’ll likely need:
Credit score of 660+
Monthly income of at least $2,500
Clean auto loan payment history
Refinancing could potentially help you:
Lower your monthly payment
Extend your repayment term
Consolidate other debts into one monthly payment
Just be sure to compare any fees from the refinance option to make sure it makes financial sense. And avoid extending your repayment term more than necessary, as this increases the total interest paid over the life of the loan.
Modify Your Lease
Another possibility is working with your leasing company to modify your existing lease terms. Many leasing companies offer lease modification programs for customers facing financial hardship.
According to FINN, lease modification options may include
Temporarily reducing your monthly payment
Deferring payments for 1-2 months
Extending your lease term to lower the monthly payment
Waiving late fees during hardship
Any lease changes should be agreed to in writing by you and the leasing company. Be sure to understand any impacts to the total amount you’ll pay over the life of the lease.
Early Lease Termination
If refinancing or modification won’t work, voluntarily terminating your lease early could be a last resort. Review your lease agreement carefully to understand any early termination fees.
Often, you’ll need to pay off the remaining lease payments in one lump sum. Plus, an early termination fee equal to a few remaining monthly payments.
For example, Consumer Reports gives this scenario
Say you have a 36-month, $300 per month lease and you want to terminate after 24 months. You’d need to pay off the 12 remaining monthly payments ($3,600 total) plus an early termination fee equal to say, three monthly payments ($900). So your total termination cost would be $4,500.
While expensive, terminating the lease and buying an inexpensive used car may still be cheaper than continuing with unaffordable lease payments.
This route also allows you to avoid repossession and further damage to your credit. But beware – you’ll still be on the hook for excess mileage charges and any vehicle damage fees assessed by the leasing company.
Voluntary Vehicle Surrender
If you can’t afford the fees to terminate your lease early, voluntarily surrendering your leased vehicle may be an option. The leasing company will sell the car and apply the proceeds to your remaining lease obligation.
According to Credit.com
You will still be responsible for any remaining balance on the lease after the car is sold, but this may be less than the lump sum owed from early lease termination.
Surrendering your vehicle allows you to avoid repossession. But make sure the voluntary surrender is agreed to in writing by your leasing company. This prevents them from being able to claim the car was stolen and taking legal action against you.
Also be aware that you may still be charged hefty vehicle disposition or transportation fees. And any balance remaining after the car is sold will hurt your credit and may be sent to collections.
So voluntary surrender should only be considered as a total last resort if you have no other options.
Negotiate a Settlement
If you’re unable to keep up with lease payments and surrendering the vehicle, try negotiating a settlement on the remaining balance. Oftentimes leasing companies will agree to settle for less than the full amount if you pay in a lump sum.
The experts at Credit.com recommend trying to negotiate a 25% to 50% discount on the remaining lease obligation
. This can help avoid having the full balance sent to collections or pursued in court.
Get any negotiated settlement agreed to in writing before sending payment. And make sure the agreement states the remaining balance will be considered “paid in full” upon receipt of your settlement payment.
Explore Rental Car Options
If surrendering your leased vehicle will leave you without transportation, renting a car temporarily may be an affordable option while you get back on your feet.
Having a rental car will allow you to:
Get to work and earn income
Search for a new (used) car
Handle tasks that require driving
Many rental car companies offer discounted weekly and monthly rental rates that may cost less than an expensive auto lease. Just be sure to avoid their overpriced insurance options and waivers – your existing car insurance policy likely covers rental cars.
Peer-to-peer rental services like Turo can also be great for finding discounted long-term rental cars from locals. Renting from an individual instead of a company often saves money.
Enlist Help from Family & Friends
Don’t be afraid to ask family members or friends for help if you’re struggling with auto lease payments. Relying on your support system is nothing to feel ashamed about.
See if a family member may be willing to cosign on a lease modification or refinancing loan to help you get approved or improve the terms. Or, they may be willing to gift or loan you money to get through a temporary hardship.
Having a friend or family member to drive you to work while you sort out the lease situation can also be a huge help. Don’t be afraid to ask for and accept help during difficult times.
Explore Government Assistance Programs
Government and nonprofit programs exist to help people struggling with auto lease payments. These programs provide financial assistance, legal help, and other aid – completely free of charge.
For example, the National Consumer Law Center connects consumers facing repossession with pro bono consumer law attorneys. They also advocate for consumer-friendly laws and protections.
In addition, local nonprofits may provide emergency auto repair grants, short-term financial assistance, and other resources. Use Benefits.gov to search for state and local government aid programs available in your area.
Prioritize Essential Expenses
If you simply can’t afford your auto lease payment plus other monthly bills, it’s time to prioritize. Your housing, food, utilities, and transportation are essential expenses that must be paid first.
Temporarily reducing contributions to savings, postponing vacations, lowering entertainment budgets, and cutting discretionary expenses can free up cash for these priorities.
Don’t let the auto lease payment prevent you from having basic necessities and getting to work. Get creative with ways to trim extra costs during the hardship period.
Avoid Risky Quick-Fixes
When cash is tight, it can be tempting to take extreme measures to get quick money to cover bills. But steer clear of dangerous options like:
Payday loans – These notorious traps charge insane rates and keep you stuck in a cycle of debt.
Auto title loans – You risk losing your car if unable to repay the loan plus 300% interest!
401(k) withdrawals – Raiding retirement savings leads to taxes and penalties.
High-interest personal loans – Read the fine print carefully and compare many lenders.
Credit card cash advances – Much higher interest rates than normal purchases.
While these options may provide temporary relief, the long-term consequences are never worth it. Exhaust all other options before resorting to risky financing.
Review the Pros/Cons of Voluntary Repossession
I want to be upfront that voluntarily surrendering your leased vehicle has severe consequences for your credit and finances. However, it may still be a better option than continuing with unaffordable payments.
According to the Federal Trade Commission, pros of voluntary repossession include:
Avoiding constant collection calls
Potentially negotiating with lender vs. going to court
Retaining other assets that can’t be seized
Up to 7-year negative impact on credit
Possible lawsuit from lender for loan deficiency
Owing taxes on forgiven debt
Potential wage garnishment
Carefully weigh these pros and cons for your situation if considering voluntary repossession. In some cases, it may help you avoid even worse financial outcomes.
Ask Creditors for Leniency
Don’t forget to also ask your other creditors, like credit card and utility companies, for assistance. Most want to continue receiving payments, so they’ll often agree to lowered or skipped payments during hardship.
According to the National Consumer Law Center, you can ask creditors to:
Lower or waive late fees
Reduce interest rates
Create affordable payment plans
This will free up cash to put toward your essential expenses and auto lease payment. Just get any agreements for altered terms in writing.
Avoid Debt Relief Companies
You may see ads from companies promising to negotiate with your auto lender and lower your payments. But the Federal Trade Commission warns these debt relief services often just take your money without delivering.
Debt settlement and negotiation is something you can do yourself for free. Don’t fall for debt relief scams that charge hefty upfront fees.
Consider Bankruptcy Only as a Last Resort
Filing for bankruptcy may be an option to discharge your remaining lease obligation or other debts – but it comes with long-term damage to your credit.
According to the CFPB, bankruptcy stays on your credit report for 7-10 years and can make it difficult to qualify for future loans and credit cards.
Still, it may be a necessary step if you have no other options and need a clean slate. Be aware you’ll still have to pay for any vehicle damage and excess mileage per your lease.
I’d view bankruptcy as an absolute last resort if you’ve exhausted all other avenues. Consult with a bankruptcy attorney to discuss your specific situation.
Don’t Wait – Get Help Today
I hope this article helped provide some clarity on your options if you can no longer afford your auto lease payment. The most important takeaway is – don’t wait to get help! Take action today to communicate with your lender, reduce expenses, and explore alternative arrangements.
The sooner you address the situation head-on, the more control you’ll have over the outcome. With some persistence and creativity, you can likely find a solution to get your auto lease back under control.
Wishing you the very best during this difficult time! Let me know in the comments if you have any other tips for handling auto leases in financial hardship. We can get through this together.