What Happens If You Don’t Pay a Disposition Fee?

The conclusion of a vehicle lease involves several financial considerations, one of which is the disposition fee. Understanding the purpose of this fee and the potential consequences of failing to pay it is important for anyone returning a leased vehicle. This article explores what happens when a disposition fee remains unpaid.

Understanding the Disposition Fee

A disposition fee, sometimes referred to as a “turn-in fee,” is a charge imposed by a leasing company when a vehicle is returned at the end of its lease agreement. This fee is intended to cover the administrative and operational costs incurred by the leasing company to prepare the returned vehicle for resale or auction. These costs typically include expenses for cleaning, inspecting, reconditioning, and processing the vehicle’s paperwork.

The disposition fee is a standard clause in most lease contracts and is payable at the time the vehicle is returned, unless otherwise specified or waived. It commonly ranges from $300 to $700. It is distinct from charges for excessive wear and tear or mileage overages, as it applies even if the vehicle is returned in excellent condition and within mileage limits.

Immediate Actions for Non-Payment

When a disposition fee is not paid by its due date, the leasing company will initiate steps to recover the outstanding amount. The initial action typically involves sending formal invoices and reminder notices to the former lessee, indicating the overdue balance. The lease agreement itself will specify the terms surrounding such fees, including payment deadlines.

Lease contracts often include provisions for late fees or penalties that can be applied to overdue amounts, including the disposition fee. If the fee remains unpaid after these initial reminders, the leasing company may add such charges to the outstanding balance, increasing the total amount owed.

Impact on Your Credit Score

An unpaid disposition fee can have direct and negative repercussions on an individual’s credit score. When the fee becomes overdue and remains unpaid, the leasing company or its designated financial institution may report the delinquency to major credit bureaus.

A reported delinquency appears as a negative mark on a credit report, potentially causing a notable drop in credit scores, sometimes ranging from 100 to 180 points. This adverse entry can persist on a credit report for up to seven years, even if the debt is eventually paid. A reduced credit score can make it more challenging to obtain favorable terms on future loans, new credit cards, or even subsequent lease agreements, impacting financial opportunities for an extended period.

The Collection Process

If the leasing company’s direct attempts to collect the unpaid disposition fee are unsuccessful, the matter typically escalates to a more formal collection process. This can involve the leasing company transferring the debt to an internal collections department or, more commonly, outsourcing it to a third-party debt collection agency. These agencies typically contact the individual through various communication methods, including phone calls and mail.

Debt collection agencies operate under specific regulations, such as the Fair Debt Collection Practices Act (FDCPA), which outlines permissible communication methods and consumer rights. While the primary focus is to secure payment through negotiation, if all collection efforts fail, the agency or the original creditor may consider legal action, such as filing a lawsuit to obtain a judgment for the unpaid amount. This step is generally reserved for larger debts or when other collection methods have been exhausted.