The Pros and Cons of Leasing a Car with Bad Credit

Get Car Financing
Even with poor credit.

By

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.


, - November 14, 2019

Car leases are typically easier to qualify for when you have good credit. This doesn’t mean you can’t lease a vehicle if you’re credit is less than perfect, but the benefits may not outweigh the drawbacks in this situation. Let’s take a look at the pros and cons of leasing a car with bad credit so that you can make a more informed decision when it comes time to finance your next vehicle.

How Leasing Works with Bad Credit

Leases work much like auto loans. You have to go through a lease company (the lender) at a dealership, and you have to meet certain qualifications in order to be approved. Additionally, lease deals come in tiers, and the tier you qualify for depends on your credit.

As a bad credit borrower, leasing isn’t impossible, but it is more difficult than it would be if you had good credit. Car leases are typically short, lasting only two or three years. In financing, a loan this short would drive up the cost of your monthly payment. In leasing, however, you’re only paying for a portion of the vehicle, so monthly payments are still relatively low compared to financing.

When leasing with damaged credit, you’re going to face a higher interest rate, just like in a loan. The interest rate, called a money factor in a lease, affects your monthly payment, but unlike an auto loan, the total charges are pre-calculated rather than based on the loan balance.

This means that a down payment – called a capitalized cost reduction in leasing – doesn’t save you any money in the long run Instead, it just prepays the lease, which lowers your monthly payment but not your total cost.

Pros and Cons of Leasing a Car

Many people look at leasing as offering something they can’t get if they finance – namely, a new car. Though it’s true that leasing does mean you get a new vehicle, often with some of the bells and whistles you’re looking for, there are a few other advantages when it comes to leasing a car:

  • Low monthly payments – Since you’re only paying for the portion of the vehicle you’re using, along with the money factor and taxes, monthly payments are relatively low.
  • New car, new technology – Leases are almost always for new cars, which means they usually come with some of the latest technology and safety features.
  • Warranty coverage – Lease vehicles are usually covered by a manufacturer’s warranty for the entire term, which means you don’t have to worry about covering unexpected repair expenses.
  • Optional down payment – Capitalized cost reductions aren’t required when you lease, but you can put money down if you want to lower the monthly payment. Remember, you’re only pre-paying the lease – not saving money – when you make a cap cost reduction.
  • No equity worries – Since you don’t own the car, you don’t have to worry about whether or not it has negative equity, meaning it’s worth less than you owe.
  • End-of-lease options – When you come to the end of your lease term, you have the ability to choose between buying the vehicle, leasing another car, or simply turning in the keys and walking away.

Though there are many benefits to vehicle leasing, don’t forget that the process is going to be difficult from the start as a bad credit borrower. As if that weren’t enough to think about, there are some disadvantages to car leasing that may be tougher to swallow when you’re dealing with bruised credit:

  • You don’t own the car – Because the vehicle isn’t yours, you can’t make changes or upgrades to it like you could if you owned it.
  • Wear and tear can cost you – There’s some wear and tear expected on any car, but a leased vehicle needs to be kept in relatively good condition. Any wear and tear that’s considered above and beyond a reasonable amount is going to cost you.
  • Limited mileage – Another drawback to leasing is that all leases come with mileage limits, and going over generally costs you around 25 cents per mile. You can typically add extra miles up front for less, but you don’t get any of that money back if you overestimate how much driving you’re going to do.
  • Extra insurance with higher premiums – Leasing generally requires you to carry higher limits on full coverage comprehensive and collision insurance. Because of this, insurance premiums are typically higher than you’d see otherwise.
  • Difficulty ending early – If for some reason you decide that this car no longer meets you needs, you may be stuck until your lease is over. Ending a lease early under normal circumstances usually means making all your remaining lease payments at once, plus paying an early termination fee.

Why Auto Financing May Work for You Instead

Choosing financing over leasing may be a better option for bad credit consumers. There are a number of subprime lenders available that are dedicated to helping people get the financing they need, even when the chips are down.

These lenders rely on outside factors in addition to your credit score to qualify you, and work through special finance dealers that we can help you find. Plus, you can check out huge selections of new and used vehicles right here on our website!

If you need a hand finding where to start, CarsDirect is here for you. We work with a nationwide network of special finance dealerships, and it’s easy to get the process of being matched with a local dealer started. Simply fill out our fast and free auto loan request form and we’ll get right to work for you.

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.

Get Your Free Score

Auto Insurance

Get competitive quotes on insurance in your area.

Sell Your Car

We will buy any car, running or not, with or (in most cases) without the title.

Get My Price

Need a Car Loan?

It only takes a minute.

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.


Search New Cars by Lease Payment »

Explore estimated lease payments with the latest manufacturer discounts.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2019 MH Sub I, LLC dba CarsDirect.com