Most Americans own a car. Also, most of the Americans among them require a car loan or take up a car on a lease, since cash upfront might not be everyone’s forte. So, let’s say you looked up used cars for sale and thought of taking a loan for it. You went and got it, but due to some misfortune at your company, you either lost your job or your salary was significantly reduced. Or maybe you lost money somehow and can’t pay the loan/lease payment on time. What will happen? Will you still own the car or lose it?
When you lease a vehicle, you are essentially taking the vehicle to your own possession and agreeing to pay a sum of money every month, without having to actually pay the entire price of the car. At the end of the lease payment, you are given an option to either return the car or own it, by paying some extra. Each lease contract will require you to make a monthly payment to the “lessor” (the one who is leasing you the car), and before you take anything up, contact them to be sure what will happen.
If you have failed to make a payment by the due date, there are a few things that can happen. There might be a “grace period” in your contract that might allow you a period of a week or two to complete the missed payment. Typically, if you miss a payment, the lessor can rightfully own the car back from you, in a process called “repossession”. However, there are a lot of factors at play here, and if your landlord is someone kind enough, then they might let you slip late on one payment.
Repossession of your car
Typically, a couple of missed payments will allow the lessor to rightfully tow your car and take it away. This process is called an “involuntary repossession” since you yourself did not give it up. But since your contract states that missed payments will trigger this clause, you have no choice but to obey. Specific contracts may have specific conditions. So, you must always read the fine print and talk with your lessor thoroughly before pulling the trigger.
You may have a right to cure the lease
Curing or reinstating the lease means you might have a window to make up for your missed payments before the repossession of the vehicle. This law differs from one state to the other. Generally, there can be some clause that may allow you to miss one payment, but give you a period of a couple of weeks to complete the payment. Of course, you will receive a notice about the missed payment.
If you pay up before the time repossession can be done, then your vehicle will be safely home with you. Very few states offer the chance to cure before repossession, and even lesser states allow for cure after repossession. Be sure to do some online digging and also ask your lessor about all the nuances before getting a car on lease.
Repossession can also cost you a lot of money afterward
If your car is repossessed, you are not free from making the payments. There will still be factors, such as:
- Paying the remainder of the lease payments
- Paying the due payments
- Wear and tear and mileage fees
- Cost to repossess
- Cost of reselling
All of these costs will be incurred by you and the money would come out of your pocket. The lessor will sell your car and send you a “deficiency” bill, which is the difference between what you owe and how much they were able to sell the car for. You are required to pay that fee and if you cannot, you will have to face some unforeseen circumstances.
Your lessor can’t breach the peace
When your lessor takes your car away, they cannot “breach the peace”. Breaching the peace means using violent methods to take your car away. They cannot threaten you or forcefully take your car away without your permission. They can and will take legal actions, but they cannot force you to give up your car. There are legal steps that need to be followed.
What are the methods of repossession?
Repossession can be done in two major ways. The first is pretty obvious, by removing your car from your property and towing it away.
The second method is the installment of a Starter Interrupt Device (SID) that allows the lessor to remotely turn off the car. This is a new method and this device might be installed in the car that you are leasing. This device will shut the car down remotely and thus, rendering it unusable, if you have missed your payment on time.
If you make your payments, the device may be reactivated and you may use your car again. However, the lessor is required to give you an advanced warning and you might ask them if your car comes with such a device or not. You have the right to know.
How can you prevent the repossession of your car?
If you somehow cannot pay the remaining lease fees on time due to whatever reason, you must approach and contact the lessor. You should let them know about your situation and why you can’t afford to make the payments anymore. They might be able to lower your payment or they might allow you to skip one payment.
Also, you can alternately try to sell your car to a third-party used car company. They will take your car, pay for your car and also pay the difference between them. This is an option you can consider.
A third option is to “voluntarily” give up your car to the lessor. If you do that, you may be liable for lesser payments and you also minimize the cost for towing.
You can be liable for early termination fees
If you go down the third route, by voluntarily giving up your car, you can be liable for a lesser “termination fee”. The Consumer Leasing Act states that the method for calculating the early termination fee has to be mentioned in the lease.
The early termination fee is the difference between the early termination payoff and the amount credited to you for the car. If you are not able to pay the early termination fees, there will be consequences. Also, your credit score and report will be messed up and it might harm your future purchases. Always try to make all of your payments on time.