3 Ways to Keep Rolling if You’re at the End of a Car Lease During COVID-19
If you’re nearing the end of your auto lease amid COVID-19, this is no time to idle.
The pandemic has disrupted the American economy, including the automotive industry. Due to the shelter-in-place order in many parts of the country, dealerships have been forced to reduce in-person interactions, including lease returns.
Whether you’re struggling due to coronavirus-related job loss or you’re simply wondering how you can return your car during the pandemic, you need to understand the options available to you.
What to Do About a Car Lease That’s Ending During the Coronavirus
If your lease was about to end under normal circumstances, you’d essentially go through a two-step process starting about 90 days before the end of your contract:
The dealership would set up an appointment for a third-party company to inspect your car for wear and tear.
You’d drop off your car at the dealership at the scheduled time and sign any paperwork to relinquish the vehicle and pay any fees.
But these are not normal circumstances.
Social distancing restrictions due to the coronavirus may have made it difficult for you to navigate the end of your lease, but it’s made it a challenge for lenders, too, noted Alain Nana-Sinkam, vice president of strategic initiatives for TrueCar, an automotive price comparison site.
“Lenders are having trouble right now even processing lease ends or lease terminations, so they’re going to be a little more flexible in that area,” he said, noting that most third-party inspections have been halted.
Depending on your financial situation, here are three options for working with a dealership if your lease ends soon.
1. Extend the Lease
Let’s think practically: It’s unlikely a lender will try to demand you return the car if there’s no place to return it to.
The alternative for many lenders is to extend the lease and offer you the option to continue making the same payment for now, according to Nana-Sinkam.
“Some lenders are doing this automatically and announcing that they’re just going to add three or six months to everybody’s lease,” he said.
Vehicle financing companies vary in their policies. GM Financial, for instance, will automatically extend your lease for a month if you don’t contact them within 10 days of your lease termination. You’ll have to contact them if you need more time or additional options.
Call your auto insurer to ask about maintaining coverage on the vehicle if you’re extending your lease.
Depending on where you live, your government may have set fewer restrictions on movement, or your dealer may offer alternative options for returning the leased vehicle.
If that’s the case — and you could use the money more than you could use a car — returning your lease could be a money-saving option, noted Todd Christensen, an Accredited Financial Counselor with MoneyFit.org, a nonprofit debt relief program.
“You’d probably save money by using rideshare for a month or two and using grocery delivery,” he said. “It might be a good time to save up for a healthy downpayment for the next vehicle.”
2. Ask for a Deferment
Regardless of where you are in your lease term, if you’ve lost income due to COVID-19, you can request a delay in payments, known as a deferment.
But in this scenario, you must reach out to your lender to request assistance — if you don’t, you risk becoming delinquent on your loan and having your car repossessed.
“They’re not doing it automatically — it’s the sort of thing that you do need to reach out and request it,” Nana-Sinkam said.
If you’re offered a deferment, be sure to ask about the terms and any fees. Most lenders will simply add your deferred payments to the end of your lease term, according to Nana-Sinkam.
“If you have 24 months left, you’ll skip a month, and next month you’ll still have 24 months left,” he said. “So the payments are not getting forgiven, it’s just getting pushed to the end.”
Even if you’re approaching the end of your lease — also known as “over term” — Nana-Sinkam recommended reaching out to your lender to request a deferment.
3. Buy the Car
If you’re approaching the end of your lease and you have the money available, purchasing the car might be your best — and easiest — option.
A purchase option should be included in your lease contract. It should include the purchase price — or “residual value” — you agreed to when you first signed your lease.
“Most of the time when you buy your car at the end of the lease, the amount of paperwork and complexity is greatly reduced,” Nana-Sinkam said. “In many cases, the lender could offer you financing to continue making payments — they might offer you an additional three-year or four-year loan.”
If you do decide to buy your car, be sure to factor in costs besides the purchase price of the car, including repairs — here’s a guide to budgeting for car maintenance.
But if you’ve already had your car for the average lease length of three years, is it worth buying and holding onto a car for another four years?
It could actually be the smarter choice, according to Christensen.
“Most vehicles made in the last 20 years should last to close to 200,000 — for the average household, that’s about 16 years,” he said. “If people will go in the direction of buying a vehicle and hanging onto it, they can have almost a decade without a car payment.”
And if you can hold onto the car even after you pay off the loan, you could save that money for a bigger down payment on your next car — and what should be your ultimate goal, Christensen said.
“It’d be wonderful if we could get out of the idea that car payments are a necessary evil.”
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.