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Lessees Advised to Think Twice Before Returning Car to Dealership

By Faye Mergel
Published: Monday, January 11th, 2010

Instead of falling way behind their payments, many lessees are thinking of bringing their car back to the dealership and letting go of the key they have been holding on for months. While this could free them from one considerable financial burden, experts warn that this could have a more adverse effect in the long run, especially when it is recorded on their credit report.

Lessees Advised to Think Twice Before Returning Car to DealershipA survey by CNW Marketing Research reveals that about 24 percent of lessees who walked away from their contracts last year cited job loss as their main reason for giving up their car. In 2007, 19 percent of interviewed lessees cited job loss as their primary reason while only 12 percent during that same year said they gave up on their payments because they think their lease was too high. Last year, their number was up by 9 percent.

Industry specialists warn that even if car owners return their vehicle in a pristine condition—with very low mileage and no damage or anything—it would still be recorded as a voluntary repossession as long as the lease is not settled or the remainder is not paid.

A voluntary repossession may sound positive, but experts noted that it has pretty much the same effects on a credit report than a traditional repossession. Rod Griffin, who directs public education for Experian, warns that any repossession mark on a credit report would seriously damage one’s credit score.

Griffin further cautioned that any repo, even if voluntary, would cause a black mark on a credit report and would affect one’s finances in the long run. He added that lenders would be reluctant to lend to anyone who walks away from his responsibilities. Giving up car payments would make it difficult for a car owner to get other loans, such as home and card loans, for as long as seven years.

Finance advisers say there are still many options for lessees instead of immediately doing something that would ruin their credit report. They suggest paying the car off or having someone to assume the payment. The first option is viable for consumers who are positive that they can have a job soon and still have a high limit on their credit card.

If paying off a car is practically impossible, experts say lessees can make someone else do it for them. Lease trading, which is done by finding someone who can assume a lease, is the best option experts cite, if lessees can no longer pay their car themselves.

Finding someone who will assume a lease will not be difficult since there are industry services designed to help struggling lessees.

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