What Happens to Your Credit if You Return a Leased Car & Pay the Difference?
Maybe you have grown tired of your leased car and want a change. You do not have to begrudgingly continue driving the vehicle until your lease term expires. If you can afford to buy out your lease, you have the option to return your leased car to the dealership. Provided you pay the difference between the amount you have paid to date and the amount you owe for the remainder of the lease, your credit will not suffer when you return the vehicle.
Individuals who are current on their payments can return their leased vehicles early and pay off the remainder of the lease without suffering a negative impact on their credit score.
When you make your lease payment each month, the dealership reports that payment to the credit bureaus. Your payment history with each of your creditors accounts for 35 percent of your credit score. Thus, if you decide to buy out your lease, it is crucial that you make your final payment on time. A single late payment can have a disastrous impact on your credit scores -- costing you anywhere from 90 to 110 points. Fortunately, returning a leased car early doesn't damage your credit unless you fail to pay the lender what you owe.
Fees to Consider
Do not make the mistake of assuming that you can walk away after you compensate the lender for the remaining lease payments. Depending on the terms of your contract, your lender may reserve the right to charge you a steep early termination fee in addition to other fees for cleaning the car or repairing minor damage. These fees can add up quickly. Review your lease contract and be prepared to pay additional fees before you turn in the keys. If your failure to budget for these additional fees leaves you unable to pay your lender on time, your credit scores will suffer.
When you pay off your car lease in full, your lender no longer updates your credit report each month. This causes the account to age. Recently updated credit items carry more weight in the FICO scoring system than older, inactive accounts. If your lender allows it, you may turn in the car yet continue making the payment each month until the lease term expires. This not only prevents you from having to come up with a large lump-sum payment, it ensures that the positive payment history associated with your car lease will remain updated and on your credit report for a longer period of time.
Credit Reporting Errors
No lender has an infallible credit reporting policy. If your lender makes a mistake or takes longer to process your final lump-sum payment than your previous monthly payments, your credit report could reflect an inaccurate late payment. Should this occur, it is vital that you remedy the problem immediately to prevent long-term credit damage. Fortunately, the Fair Credit Reporting Act notes that all consumers have the right to access each credit bureau's report free of charge once each year. After paying off your car lease, consider reviewing each of your credit reports for reporting errors to ensure that you aren't unjustly penalized for a lender's mistake.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.