When you signed the lease for the 2019 1500 RAM truck, you had no inkling that the lease would one day come back to bite you. Most don't even realize when they sign a lease that they have put their signature on a contract that can legally bind them to honor their monthly leasing payments. What happens when you can't afford the lease? How can you drop a lease with a minimum of collateral damage?
Time to Negotiate: Call the Leasing Company
Believe it or not, you can contact the leasing company and ask them to lower the monthly payments on your lease. Wait a minute—why would a leasing company agree to take less money? Basically, it comes down to sound business principles. While not every leasing company will do this, some do it because it costs them less to keep you on the lease at a lower monthly payment than what it does to repossess the vehicle if you default on the lease. They will lose the monthly cash they were making off the lease as well as have to pay for the repossession. The titleholder of the vehicle will lose money. In some cases, the leasing company prefers to lower the monthly payments to a rate that you can afford.
Upgrade to a More Expensive Model
One way that leasing companies let you drop a current lease is to upgrade to a pricier vehicle. However, we don't always recommend this option because it can be a loaded dice against you. For example, if you can't afford the current lease, why on earth would you want a more expensive lease? In addition, you don't always get absolved of the trouble from ending your contract early. For example, you may still have to pay the leasing payments if you make the switch to a higher end vehicle. Depending on the terms of the contract, you may be obligated to termination fees, storage, and transport fees and any associated taxes. To put it simply, you won't get off the hook of a lease simply because you upgraded to a more expensive vehicle, and in some cases, this could make it even worse.
Find Someone Else Who Wants to Buy the Lease
One of the best ways to get rid of a lease that you can't afford is to have someone else take the lease off your hands for the vehicle. You can choose to find someone else yourself, but you can also visit one of the lease-swapping websites to find someone else who wants to take the lease. Depending on the contract, you can minimize the number of fees this way. However, the one thing that we have to keep in mind is that every leasing contract will differ from the last. What the terms say within the contract will dictate the terms of the lease.
Why would someone choose to sign up for a lease in this way? The biggest reason people choose a lease like this is that they only want to use the car for the short term. Instead of taking on a lengthy lease, they can get a better deal agreeing to a shorter term. Meanwhile, this plays to your benefit because you can off-load the burden of the lease onto someone else with the least amount of collateral damage.
In other cases, people choose to go with this type of contract because it doesn't have a huge upfront cost, and they can get a better deal on the lease in this way. Beware: This doesn't always work.
- You have to off-load the lease on someone responsible because your name will remain on the contract.
- Or you could compare this to co-signing for someone on a loan.
- Make sure that you have chosen someone reputable because if they decide to default on the loan, it will come down on you.
However, in some cases, if you don't get rid of the car lease, you will have problems anyway, so you might as well take the risk of off-loading it on someone else. Before you start the process for this one, you should weigh the risk of if you don't get rid of the lease.
Buy the Car Outright
Some leases have a “lease-to-own” clause where you can buy the car when the lease ends. Another case is where you buy the car outright to get out of unfavorable terms. However, you have to learn what the cost of the car will be, and this gets outlined in the “fair market value” part of the lease. In many cases, the “fair market value” will be above and beyond the costs to make it worth it. Sometimes, you might find it worth doing this, however, because you can get out of a lease where you have too many restrictions, such as restrictions on the mileage and no customization to make it truly yours. These are some of the reasons that you might want to buy the car outright, depending on the terms within the lease.
Filing for Bankruptcy
Obviously, you shouldn't take this one lightly, but you can discharge a lease if you were to file for Chapter 7 Bankruptcy. This will discharge the amount owed on the lease to help you get rid of it. For those on a higher income level, you can also file for Chapter 13 Bankruptcy, which means that you will add this to a payment plan. Weigh the consequences of filing for bankruptcy and calculate your best course of action. With Chapter 7 Bankruptcy, you will be free to decide if you'd like to continue under the current lease or if you'd like to free yourself from it. However, bankruptcy will decrease your credit score anywhere from 160 to 220 points.
It depends on the type of bankruptcy that you filed for, but you shouldn't take filing for bankruptcy lightly because it will remain on your record for ten years. In addition, you could also lose some of your most prized possessions as a result of a bankruptcy. You should only file for bankruptcy if you have no other choices.
Do a Voluntary Repossession
In some cases, you have to simply admit that you can't make the payments on the car. For those situations, you take the car in and willingly hand them the keys. You should only do this as a last resort, however, because it could drop 100 points on your credit score. Any late payments or collections will also remain on your credit record for up to seven years, so you want to try to keep up with it. This is one of your worst options, so you should consider it only if you have no other choice. Important to note, voluntary repossession won't be documented on your credit score as too differently from traditional repossession. While it might sound that they will give you a better report, it doesn't fare too much better.
Doing Damage Control
If possible, you should try to stick it out for the remainder of your lease because the credit implications of a failure to do so can be burdensome. Many people fail to even realize that when they sign a lease like this, they have signed a contract, which will legally obligate them to continue paying for it. It can be infamously hard to get out of a lease, which is why you have to exercise caution with it.
Getting into a lease should involve you getting into it in the right way, and you should never be afraid to negotiate unfavorable terms out of the leasing contract. Credit reports haven't changed much over the years, but how lenders see these things have changed over the years. In the past, they might have looked over the details of a broken lease, but today, they will do a little more in-depth research. They look at things more closely and keep a closer eye on your credit history.
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What to Do if You Have Broken a Lease
Unfortunately, sometimes you can't avoid breaking a lease because it costs too much to keep up with. What can you do in these situations? If you have had to have your car repossessed because you couldn't afford the payments on a lease, you should immediately try to establish a positive payment history. This ultimately does damage control because you never know when you might want to sign for a lease in the future. Even if you have made a mistake in the past with leases, the best thing that you can do is to learn from it.
As you can see, getting out of a car lease isn't necessarily the easiest thing. You usually can't do it without running up against some steep penalties, which is why you should always make sure that you don't stretch yourself too thin when signing a lease. If you think about it beforehand, you can save yourself from getting too far into trouble with it. It's not that you should never sign a lease for a car, but you have to do it with your eyes wide open.