I'm stuck in an onerous lease. When I called to discuss my options
with the finance company, simply leaving the car at the dealership and
saying "I don't want this anymore" was an option, but they said it
would hurt my credit rating.
 How badly does lease abandonment affect one's credit rating?

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Clarification of Question by pcventures-ga on 07 May 2006 05:25 PDT

This is definitely a lease, and not a balloon purchase.
And the finance company itself (a financial arm of the car company)
told me it was an option, albeit one that may hurt my credit rating.

So I re-ask: how damaging would this be to my credit if I did a "walk-away?"

Car companies love the term "lease" for your agreement. It is so much
better than "sale and agreement to buy back at pre-negotiated price
and condition." A lease is something a lot of folks think they can
understand; after all, it's just like renting, right? I've rented an
apartment before, so I can rent this car for a couple of years. No
need to get an attorney or to familiarize myself with the complex laws
regarding leases-- all of which were written by the companies leaasing
you a car!

When you lease a car, you actually buy it (why do you think you pay
taxes on the thing?) and the manufacturer/dealer agrees to buy it back
in a certain amount of time in a certain condition at a certain price.
Rather than you paying an entire car purchase payment every month and
then getting a lump sum when you sell the car back at the end of the
agreement, you get a portion of the lump sum back every month and
NOTHING at the end. This makes a lease payment smaller than a purchase
payment of equal length. It is also why you MUST negotiate the
capitalized cost of the car. If you don't know what that is, you
should not be getting into a leased vehicle.

So "walking away" from a lease is defaulting on a purchase and sale agreement. 

Woe unto you if the vehicle is worth less than the depreciation
balance on the lease-- and it WILL be! Who do you think is going to
set the value of the car? Who will do the calculations for
depreciation? Who will work to maximize their payout? Why, the nice
folks you leased the car from!

You'll be on the hook for that amount. If you cannot or will not pay
it you may be sued for it, and/or get a judgement for it, and/or have
it put on your credit report, the incarnation of the "permanent
record" we were warned about as kids.

I leave it to a Researcher to provide more details for your specific
situation. Knowing the make/model/year/trim of the car, the lease
amount and start date, and any money you put down (not including tax,
tags, and registration, unless you were foolish enough to roll them
into the lease) can help narrow the exact damage you face.

I am sorry if I seem harsh, but this is a complex business deal that
by far too many unsuspecting folks wander into. There is nothing wrong
with saying the deal seems to confusing and getting advice before you
sign rather than after.

Dealers and their finance people count on you not wanting to appear
dumb. They dangle the car keys in front of you like it was the last
vehicle on Earth and know that human nature will encourage people to
go ahead despite misgivings. FIGHT IT!

I'm not so sure what you say is accurate markvmd.  When you lease a
car, you do not hold title to the vehicle.  Also, you only pay sales
tax on the portion of the vehicle that depreciates.  I'm quite
familiar with the differences because in NY, our ridiculous vicarious
liability, which I believe is now effecitevely overuled by recent
federal legislation, has made leasing to onerous to do. Instead, we
have what you actually describe, a situation where I do hold title,
payed for by a baloon loan with a contract that says the dealer will
repurchase the car at a fixed, assuming the car is in an acceptable
condition. In this case, you do have to pay the full sales tax on the
vehicle.  But this is definately not a lease.