For Auto LeasingNot so long ago, our day-to-day activities all centered on a small area. We once walked to the store on an errand trip, and work was usually a short hop away. That's most certainly changed. Driving on the freeway for an hour or more is the new normal, no matter where you're going, and public transportation just doesn't cut it in many places, especially if you have a family. These days, we all need the convenience and mobility offered by a car. So you just head out there and buy one, right? Wrong, it's not that simple, especially if you have bad credit. If you can't get the financing you need to buy a car, why not lease one?
Leasing can be a good option if your credit score is poor. There will still be some hurdles to overcome, but if you have credit issues, leasing is often a wiser decision than struggling to find financing or tying yourself to a long-term loan with a huge interest rate.
Leasing will give you the advantages of lower monthly payments and a shorter contract term. So how do you get in on this action? Here's a guide to assist you in your quest to lease a car even with a low score.
The RealityThe car leasing advertisements on TV typically depict a Brady Bunch style family with more money than Bill Gates strolling into a dealership, and picking out a brand new car for an absolute deal. The paperwork also seems only to require a single signature and a handshake before they drive off to suburban perfection. Most of us don't quite fit that picture, especially when it comes to the credit score! The reality of your deal will be very different from the fictitious world depicted in the advertisements, and it'll take a lot more than a handshake to seal the transaction. A bad financial history will affect your ability to lease a car.
Don't give up! It's not impossible; you just have to use some smarts.
Get Informed and Shop AroundYour first step is a little reconnaissance and intel gathering. Review your Free Annual Credit Report, check for errors, and know your score. Then check out your local dealers and find out what the minimum accepted score is for leasing. Unsurprisingly, most dealers expect your score to be decent, and the best deals apparently go to those with better scores. With a little bit of research, you can find a dealership willing to help you lease even with bad credit.
The ProsIf you were to take out an auto loan and purchase a car, not only will you have a long-term loan, your bad score will nail you with a substantially high-interest rate. Leasing, on the other hand, gives you lower monthly payments and a shorter contract term. You end up driving a brand new car with the latest technology, a vehicle that you probably couldn't afford to buy, and the short-term contract will allow you to lease a new vehicle approximately every two years.
Your leased vehicle will be new or nearly new and will still be under the manufacturer's warranty. If there are any problems, from mechanical failures to electronic issues, the manufacturer will cover the cost of repair. That's right; no more getting ripped off by some hokey used-car dealer who sells you a vehicle "as is," which costs you thousands of dollars in repairs not long after you've bought it.
Leasing can even improve your credit. If you make the payments on time every month, without missing a single one, it will have a positive impact on your report. Keep up this good work, and you may find yourself getting an even better deal for any subsequent leases.
The ConsCons? That's right, folks. There's always a downside, especially when you have poor credit.
The first hit you'll have to take on the chin is a high down payment or security deposit. The system will consider you a higher risk due to your poor score, but you can't take this personally. It's not about you as a person; it's about the numbers. Period. It will all depend on the dealer, which is why shopping around is among your first priorities, but it could be as much as a 10% deposit.
The second hit will be paying a higher rate of interest. Yes, monthly payments are lower on a lease than on an auto loan, but you'll still be paying a higher interest rate than a person will with a good score leasing the same vehicle. Here's where the benefits of the short-term contract come in, though. If you were to keep leasing the vehicle after the initial contract has expired, you'd eventually end up paying more than the car is worth on the market. Give it back at the end of the term and start again!
Here's hit three; what a combo, right? You'll have to pay close attention, as many of the dealers will try to take advantage of you. They'll look at your report and see you as desperate, and might even expect you to make weekly or bi-weekly payments, rather than monthly installments. Don't do anything you're not comfortable with, and most importantly, anything that you can't afford. Even if you are a little desperate, it's up to you to look out for your interests and walk away from a bad deal.
1. "Free Annual Credit Report" . AnnualCreditReport.com