Bad Credit: Car Lease or Finance?

October 16, 2013

A bad credit car lease can be challenging to find these days. In many cases, if you have poor credit or a lower credit score, it is well worth your while to attempt to conduct some credit repair to improve your credit score before attempting to either lease or purchase a car.

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Credit Scores

A good credit score in the car lending business is a 680 or higher. Ironically, this is the exact average around the country and anything above a 700 is considered very good. However, it is a good idea to get a copy of your credit report to find out exactly what your credit score is before applying for a car loan or attempting to lease a car.

Most (in fact an estimated 25%) credit reports have errors and incorrect information on them. If you find that your credit score is lower than you want it to be, then look at the credit report to determine if there is incorrect or erroneous reporting information on it. You can challenge anything that is incorrect, and it should be changed after a 30 day investigation by the credit reporting agency, but it may take several requests to have the information changed. Also, you can report any positive credit information, like credit accounts that do not appear on your credit report by submitting that information and supporting documentation to the reporting agency. Both of these actions should improve your credit score.

Having a good credit score is extremely important because it is used to determine the interest rate you will be charged if you decide to purchase a car and whether or not you will even qualify if you attempt to lease a car.

Leasing Versus Purchasing

Leasing for people with poor credit is hard to come by. This is because car leasing companies consider individuals with poor credit to be poor risks. As a result, leases are only offered to "highly qualified" individuals. The sad fact is that today, you are more likely to be able to purchase a car than lease a car if you have bad credit.

Another issue can be a high debt-to-income ratio. One of the factors that an auto finance company will look at is what your income is and what your current financial obligations are. This includes looking at your available credit in comparison to your income. If you have a high number of open credit cards or other financial obligations (rent, mortgage, spousal support, child support, etc) then that will count against you. Ironically, if you close a credit account this will actually lower your credit rate, however.

One way around the income and credit issues is to either have a cosigner who has good credit or to pay a higher interest rate or a larger down payment. These two factors can be used to help you with either a purchase or a lease.

If you have poor credit, do your homework and make every attempt to repair your credit and improve it before you attempt to either lease or purchase a car. If you have the option of increasing your down payment or getting a cosigner, this may help you with either leasing or purchasing a car. However, if you have poor credit, you may only be able to purchase a car successfully.

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