Leasing and auto loans can both be feasible ways to get the car you need, even when you're struggling with credit issues. Leasing a vehicle with bad credit can be a little trickier than getting an auto loan, but not impossible if you go about it the right way.
Bad Credit Leasing Comes at a Price
Leasing isn't a permanent situation, and it's much less permanent than financing a car with an auto loan. Once your lease term is up, you have to give the vehicle back, or shell out the remaining cash for the car's purchase price. Leasing a vehicle definitely has some pros and cons, and it's especially important that you pay attention to the cons when you're attempting to lease with poor credit.
These are the details that can make a lease car less desirable when you have bad credit:
- You may not qualify for the typical lease terms – 24 or 36 months – that are commonly touted when you're a bad credit lessor. You're may see a term of 48 to 60 months, which can make a huge difference in cost and practicality. At those terms, you could likely get an auto loan and own the vehicle after five years.
- You may not save as much as you're hoping on a lease with poor credit. Leasing typically costs less than a car loan since you're only paying for the portion of the vehicle you're using for a set amount of time. However, the interest rate you're likely to qualify for with bad credit may not amount to any money saved on a lease.
- Down payments, which are typically required for bad credit auto loans, aren't required in a lease. However, you may be required to place one or more security deposits on the lease, which may be refunded to you at the end of your term. You may not get your money back if there's too much wear and tear, excessive mileage, or any damage to the car. If your security deposit(s) doesn't cover the cost of any damage or overage at lease turn-in time, you have to make up the difference before you can walk away.
- Getting out of a lease early may also prove costly. If leasing isn't right for you, you're most likely to have to pay your entire lease cost anyway. There's no option for trading in a lease vehicle at any time like there is when you have an auto loan.
Though the above points show you some reasons why leasing may not be the best idea for a low credit borrower, there are some pros to the process as well. If you're the type of borrower that likes to have a new car every few years, or only wants to drive the latest and greatest vehicles, leasing may be for you, despite the lack of actual money savings over an auto loan.
The trouble you're most likely to find with leasing, though, is in finding a lessor that works with problem credit.
Credit Scores and Auto Leasing
Since a higher credit score gives you a better chance at leasing, finding a lessor to work with may be easier if your poor credit score is between 501 and 660. These scores are considered to be nonprime or subprime according to Experian, but you may still have a shot at getting the lease you're looking for.
If your credit is any lower – in the 300 to 500 range – you're not likely to have an easy time finding a way to qualify for a lease. This credit score range is considered to be deep subprime, which is below the cutoff that many lessors have for a lease approval.
The good news is that low credit doesn't stand in your way with a car loan.
Subprime Lenders and Bad Credit Car Loans
If you need a vehicle and leasing isn't in the cards for you right now, a bad credit auto loan can help. Not only does it help get you into the car you need, it can help you build your credit score, too. This win-win situation could be just what you need to get started so that you have a better chance at leasing next time around.
Subprime lenders work through special finance dealerships and don't rely on credit score alone to see if you're qualified to take on an auto loan. They look at many factors, such as your income, employment, residence stability, and willingness to invest in your own success.
It may seem groan-worthy to have to gather documents and bring them in with you to the dealer, but it's worth it in the long run. These steps are actually what makes it possible to get into a subprime car loan – bad credit lenders know you're more than just a number.
Even though lenders that can work with low credit are out there, it can still be difficult to pick the dealerships that are signed up with them out of a crowd; not all dealers work with subprime lenders. You're in luck, though.
Here at The Car Connection, we've cultivated a nationwide network of special finance dealerships that have lenders available to help people with bad credit, no credit, and even bankruptcy. Fill out our no-obligation auto loan request form, and we'll get to work matching you with a dealer in your area!