Leasing a Vehicle With Bad Credit

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - September 16, 2020

When you're struggling with poor credit, leasing a vehicle may not be the first choice that comes to mind. Though leasing is more difficult with lower credit, it's far from impossible if you're working with the right lender. Before you consider trying to find a lease deal as a bad credit borrower, you should know the difference between leasing and auto loans so that you can make the decision of which one is better for you.

Leasing a Vehicle

At first glance, leasing a car may seem like a good deal. After all, you're not paying for the full purchase price of the vehicle. This makes it cheaper to pay for month to month, but getting a lease started and finished may incur extra charges you aren't anticipating.

When you lease a car, you're paying for the depreciation over the time you're using it. Leases are typically for 24 to 36 months, and you're paying for whatever value is lost during that time. You also pay for interest, known in leasing as the money factor, and taxes. Unlike a loan, taxes and the money factor are rolled into your monthly payments.

The issue with leasing as a bad credit borrower comes from the fact that lower credit scores earn you a higher interest rate; this goes for both loans and leases. That higher money factor can translate to less savings than you might be hoping for on a leased vehicle.

Additionally, you're likely to be asked to pay one or more security deposits when you lease with bad credit. These may be refunded to you if the car is returned in acceptable condition, but there are a lot of places a lease can cost you on the back end.

Turning In a Leased Car

The big cash-draining features of a lease are the mileage limitations and the need to return the vehicle in good condition. Lease cars are given a set amount of miles they can be driven over the lease term. If you go over that mileage limit, you can expect to pay around 25 cents per mile. Wear and tear is normal on any vehicle, but you need to keep it to a minimum when you're leasing. Any condition or damage that happens should be taken care of right away. If it's turned in with what the lessor considers excessive damage, it's going to cost you.

Incur enough charges at the end of your lease, and your initial security deposit may not cover them. This means you end up paying out of pocket just to give up the car. Speaking of which, once you get to the end of your lease term, you're faced with a decision you won't have to make if you get an auto loan instead: what’s next?

When you come to the end of a lease term, you can return the vehicle and walk away, or you can choose to buy out your lease. Either option means spending more money either in the form or another lease or purchase.

Bad Credit Auto Loans

Despite having a poor credit score, a car loan is easier to come by. There are subprime lenders available at many special finance dealerships that can help people who are struggling with credit situations. These lenders don't look at your credit score alone to determine auto loan eligibility, instead examining many factors of your financial life to assess your creditworthiness.

You won't be asked to provide a security deposit up front like you are with a lease, but you still have costs that are due at signing. These fees include tax, title, and license fees, which are often required to be paid for up front. If this is the case, and you're paying for your taxes in one lump some, it can cost you hundreds of dollars (or more) at once. Additionally, bad credit car loans require a down payment – usually $1,000 or 10% of the vehicle's selling price, though the amount can vary depending on your situation.

Since you're also paying for the entire cost of the car plus interest, your monthly payments are likely to be higher on a loan than a lease. However, once your loan term is over, you own the vehicle. This means you're welcome to keep it in whatever condition you like, and are free to put as many miles on it as you wish, unlike a leased car.

It may cost more from the start, but the process is hopefully not one you need to go through often. Assuming you purchase a reliable vehicle that lasts, you may only need to go through the auto loan process every five to 10 years, rather than every two or three, like in a lease.

Car Lease or Car Loan: Which Is Right for You?

So, now you know that leasing comes with costs at the start and close, and that an auto loan may cost you more each month over a lease. With pros and cons to both situations, how do you know which one to choose?

Choosing a lease or a loan can be a tough decision, and there's no one right answer. Consider this: if it's a priority for you to drive the latest cars with the newest tech, leasing may be the way you go. Keep in mind, however, that you may not qualify for a bad credit vehicle lease on the top-of-the-line makes and models, or the highest trim levels. This could make your new leased car dreams seem a little less shiny.

If you want a vehicle that doesn't limit your ability to deck it out with personal style, curb your appetite to hit the open road, or dictate the condition you keep it in, an auto loan may be your option. Financing a car with an auto loan loan may give you a wider variety of vehicles to choose from, which can help when you're looking to keep a car for years to come.

Let Us Help You Take the First Step

Though leasing a vehicle with bad credit is possible, it isn't always the right decision when you're struggling with credit issues. In order to have an easier time with a lease, you may choose to purchase an affordable, reliable car and work on your credit while you pay it off.

An auto loan can raise your credit score significantly, and lets future lessors see that you've been responsible with a car payment. This way, when the time comes to trade in the vehicle you financed, you may have the credit score to take on a lease with ease.

Whether you've decided between a lease or a loan, one thing is certain if you have poor credit – you need a lender that helps people who are going through credit problems. These can be tough to find if you don't know where to look, and that's where we come in.

At CarsDirect, we've gathered a network of special finance dealerships all across the country, and we want to match you to one in your area. You can take the first step today by filling out our fast, free, and zero-obligation auto loan request form.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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