Leasing a car isn’t the same as financing one. Instead of taking out a loan and paying the vehicle off, you’re essentially renting a car for a set amount of time – usually 36 months – and at the end of the term you can choose to buy it, sign another lease, or walk away. Leasing is a great alternative for borrowers who have very good to excellent credit and want the latest and greatest vehicles to drive.
Applying for a lease is very similar to applying for financing. In order to get a lease, you should follow these three steps:
- Check your credit score – There are many online resources for checking your credit score. You can even get your credit score directly through us! You can also go to myFICO.com and request your FICO score for a fee, visit Credit Karma, or, if your provider offers this service as many do, view your FICO score from your credit card provider. An auto-enhanced version of your FICO score is the most common one lenders use when financing a car.
- Budget and calculate – Next, take a look at what you’re spending every month compared to what you make. Using online tools and car payment calculators, see how much you can afford for a monthly payment.
- Research vehicles – Once you have an estimated budget, you can search for lease deals and cars that fit within it.
After you have all this information collected, you can find a dealer offering the type of lease deal or vehicle you’re looking for.
How do you qualify for a lease? To be approved, you usually need good to excellent credit (700 FICO score or above). If you don’t have good credit, you may find getting approved to be more difficult, although a few manufacturers do offers leases to buyers with less than perfect credit. But to qualify for one of these leases, you typically need to provide three things to the leasing company:
- Proof of income with a recent pay stub
- A list of six to eight personal references with names, addresses, and phone numbers
- Proof of residency with a recent utility bill
If the leasing company is hesitant to approve you after providing these documents, you may need to have a cosigner ready. Keep in mind that not all leasing companies allow people with bad credit to lease, but it doesn’t hurt to ask.
Leasing Pros and Cons
If you’re considering leasing, you need to keep these pros and cons in mind:
- Monthly budget – Unlike financing a car, your monthly payment is based on how long you use the vehicle – usually two to three years – making it lower than if you were financing. The monthly payment includes the car’s depreciation and interest charges.
- You get a new vehicle – You lease a new car covered under warranty. At the end of the lease, you can purchase it, or choose to lease again and get another new vehicle.
- You can apply your trade-in – Although trading in your current car won’t lower the overall cost of the lease, you can lower your monthly payment and pre-pay the lease by applying any trade equity.
- Mileage restrictions – How much driving do you plan to do? Many lessees find the mileage restriction to be the most difficult part of leasing. If you know you won’t be driving a lot, leasing can be great for you. But, if you aren’t sure how much driving you’ll be doing and you end up going over the mileage limit, you end up paying excess mileage charges.
- How long you plan to keep the car – You need to be certain of how long you want to lease the vehicle for. You can sometimes extend a lease at the end of the term, but breaking a lease early can be costly. So, you need to be ready to commit to the time frame once you sign the lease contract.
- Maintenance isn’t covered – You’re responsible for keeping up with basic maintenance and any repairs not covered by the warranty. If you don’t take care of the car you can be charged excess wear and tear fees at the end of the lease.
The Bottom Line
Leasing isn’t for everyone. If you have bad credit and are having trouble qualifying for a lease, you might want to consider applying for a subprime auto loan, which can build up your credit so that you could eventually qualify for a new car lease.
If you have bad credit and you’re ready to buy a vehicle, but aren’t sure where to start, let The Car Connection lead the way. With our simple auto loan request form, and our nationwide network of dealerships, we can to connect you to a local dealer that can help you get the financing you need.