Does Returning a Lease Hurt Your Credit?

A car lease is a long-term rental agreement for a vehicle, typically spanning 24 to 48 months. The lessee makes regular monthly payments to the lessor for the car’s use. At the lease term’s conclusion, the vehicle is returned to the dealership or leasing company. Many consumers wonder how this return process might influence their credit standing.

Impact of a Standard Lease Return on Credit

When a car lease is managed responsibly, returning the vehicle itself generally does not negatively affect a credit score. This assumes all contractual obligations, including timely payments, have been met throughout the lease term. Making payments on time builds a positive payment history, a significant factor in credit scoring models. However, simply completing a lease agreement and returning the vehicle does not add new positive credit history in the same way that paying off a loan might.

Situations That Can Negatively Affect Credit

Several circumstances surrounding a lease return can lead to a negative impact on an individual’s credit report. One common issue arises from outstanding balances or unpaid fees, such as remaining monthly payments or a disposition fee, a charge for processing the vehicle’s return. Disposition fees typically range from $300 to $500, but can sometimes be higher, reaching up to $700. If these amounts are not settled, the lessor may report the delinquency to credit bureaus.

Charges for excessive wear and tear also pose a risk. Significant damage beyond what is considered normal for the vehicle’s age and mileage, if left unpaid, converts into a debt. This includes large dents, tears in upholstery, or severe tire wear, leading to a bill that, if neglected, impacts credit. Similarly, exceeding the agreed-upon mileage limit in the lease contract results in per-mile charges, often ranging from 10 to 30 cents per mile. Failure to pay these excess mileage fees can also result in the debt being reported to credit agencies.

Terminating a lease agreement earlier than scheduled often incurs substantial early termination penalties, which are outlined in the lease contract. If these penalties are not paid, the outstanding amount can be sent to collections and reported as a debt. Any missed or late payments during the lease term are directly reported to credit bureaus and can significantly lower a credit score. Creditors can report late payments once they are at least 30 days past due, and these delinquencies can remain on a credit report for up to seven years from the original delinquency date.

Steps to Safeguard Your Credit

To ensure a smooth lease return that protects your credit, proactive engagement with your lease agreement and vehicle maintenance is important.

Review your original lease contract: Thoroughly review clauses detailing mileage allowances, definitions of excessive wear and tear, early termination provisions, and any associated fees like disposition charges. Understanding these terms upfront helps prevent unexpected costs.
Maintain the vehicle: Regular servicing and careful handling throughout the lease term are crucial. This can significantly reduce the likelihood of incurring substantial excessive wear and tear charges upon return.
Monitor mileage: Consistently track your vehicle’s mileage against the contractual limit to avoid costly overage fees. If you anticipate exceeding the limit, contact your lessor to discuss options, such as purchasing additional miles.
Utilize pre-return inspections: Many lessors offer a pre-return inspection service, typically a few months before the lease concludes. This allows you to identify any potential charges for wear and tear or mileage in advance, providing an opportunity to address issues or budget for costs.
Pay all final bills: Upon returning the vehicle, ensure all final bills, including any disposition fees, excess wear and tear charges, or mileage overages, are paid promptly and in full.
Keep all documentation: Meticulously retain all documentation related to your lease agreement, payment history, inspection reports, and the final return receipt. These records serve as proof of fulfillment of your obligations and can be invaluable if any disputes arise.