SCRA and Auto Loans: What Service Members Need to Know
Active duty military personnel have certain protections under the Servicemembers Civil Relief Act (SCRA) when it comes to auto loans and leases. While the SCRA doesn’t allow service members to simply “get out of” a car loan, it does provide some important benefits and options.
Key SCRA Protections for Auto Loans
The SCRA offers two main protections related to vehicle financing:
Interest rate cap: For loans obtained before entering active duty, interest rates are capped at 6% during service and for one year after.
Lease termination: Service members can terminate auto leases without penalties in certain circumstances.
When Can a Service Member Terminate a Car Lease?
Under the SCRA, active duty personnel can terminate a vehicle lease without early termination fees if:
• The lease was signed before entering active duty for a service period of 180 days
• The lease was signed during active duty and the service member receives PCS orders outside the continental US
• The service member is deployed with a military unit for 180 days
It’s important to note that these protections apply to leases, not traditional auto loans.
Steps to Terminate a Lease Under SCRA
To properly terminate an auto lease under SCRA:
Provide written notice to the lessor
Include a copy of military orders
Return the vehicle within 15 days of delivering the notice
Additional SCRA Benefits for Auto Loans
While the SCRA doesn’t allow outright termination of a traditional car loan, it does provide other valuable protections:
• Prevention of repossession without a court order for pre-service loans
• Ability to request interest rate reductions on pre-service loans
• Potential deferment of payments if military service materially affects ability to pay
Seeking Assistance with SCRA Rights
Service members unsure about their rights or needing help exercising SCRA protections should:
• Contact their nearest military legal assistance office
• Reach out to their lender to discuss options
• Consider speaking with a financial counselor through Military OneSource