What happens if I don’t make the payments on my auto lease?
Answer: If you miss payments, the dealership or finance company you lease your vehicle from, known as the “lessor,” may be entitled to repossess the vehicle.
Your lease agreement will state what constitutes a default of the lease as well as if there is any “grace period” in making lease payments. Not making a contractually required monthly payment will normally be a breach of the lease and the lessor can then repossess the vehicle from you. You should contact your lender if you are unable to make your monthly payment on its due date. Servicemembers may have additional protections under the Servicemember’s Civil Relief Act. You should contact your local JAG to find out if these protections apply.
You may have a right to “cure” or reinstate the lease. Your lease contract, as well as your state law, may provide for a right to cure or reinstate the lease after a missed payment. If you have this right, it allows you to make up your missed lease payments before the vehicle is repossessed. You would generally receive a notice after a missed payment and one to two weeks to make up the missed payment. While only a minority of states provide for a right to cure before repossession, even fewer states provide for a right to cure after repossession. Check with your state attorney general or consumer protection office for more information on your state law.
Your lessor cannot “breach the peace.” Your vehicle can only be repossessed if it can be done without breaching the peace. The definition of “breach of the peace” varies depending on your state law. Typically, it includes things like threatening or using physical force, removing a vehicle from a closed garage without permission, or continuing with repossession after you have resisted or refused to allow the repossession.
Repossession methods. Besides physically removing the vehicle, a lessor may also use a starter interrupt device (SID) in place of repossession or to help facilitate repossession. A SID is a device that allows a lessor to remotely deactivate a vehicle’s ignition system if a borrower/lessee misses payments or defaults. The shut-down can be temporary, until a payment is made, or it can be done to make repossession easier. The rules on SIDs vary from state to state so ask your lessor before signing the contract if your vehicle is equipped with a SID. If it is, you should ask if there are any warnings given before the vehicle is shut down. You may also want to ask if there is a way for the vehicle to be re-activated in case of an emergency.
You may be liable for early termination fees. Defaulting on a lease or voluntarily returning your vehicle to the lessor can trigger a substantial early termination fee. Check your lease agreement. Under the federal Consumer Leasing Act, the method for calculating the early termination fee must be disclosed in the lease. The early termination fee is generally the difference between the early termination payoff and the amount credited to you for the vehicle. Suppose, for example, that your early termination payoff amount is $16,000 and the amount credited for the vehicle is $14,000. The early termination charge would be $16,000 minus $14,000, or $2,000. The earlier your lease is terminated, the greater this charge is likely to be. If you are unable to pay the early termination fee, and default, the lessor can report the amount of delinquent fees to the credit bureau.
If you are charged an early termination fee, be sure you understand how it is being calculated and consult an attorney if you think it has been done incorrectly.