Leasing and buying can both be a good way to get the car you need, even with credit issues. Though both processes have similarities, there are some major differences which could impact your decision to go with either the lease or purchase of a vehicle with bad credit.
Leasing and Buying Similarities
When you have poor credit, both leasing and buying with an auto loan can be a bit more difficult to qualify for than if you have good credit. In most situations, neither is impossible to qualify for, though leasing is the tougher of the two to get when you're struggling with a low credit score.
In both cases, you need to meet the qualifications set out by a lender or lessor, which show you have the ability, stability, and willingness to complete either one successfully. Both leasing and loans may allow you to get a new car, but that's where the similarities end for the most part.
Leasing and Buying Differences
In order to decide which option works for you and your credit situation, it may be more helpful to look at the differences between leasing and buying a car. Let's take a look:
| Leasing | Buying | |
| New Vehicle | Yes | Possible |
| Vehicle Ownership | No | Yes |
| Down Payment | No | Yes |
| Lower Monthly Payment | Yes | No |
| Interest Rate | No | Yes |
| Money Factor | Yes | No |
| Security Deposit | Possible | No |
| Mileage Limit | Yes | No |
| Wear and Tear Charges | Possible | No |
| Trade In Anytime | No | Yes |
| Early Termination Fees | Yes | No |
| Inception/Termination Fees | Yes | No |
Leasing:
As you can see from the chart, leasing and purchasing have some major differences. The first thing you notice is that you don't own the vehicle in leasing, which means that many of the things you can do with a car while you're financing an auto loan – unlimited mileage, choosing how well you keep the vehicle clean, and the ability to customize the car – can't be done with leasing.
However, since you don't own the vehicle, leasing can lead to a lower monthly payment. This means paying for the cost of depreciation, interest, and taxes over a set time (typically two or three years) rather than the entire cost of the car.
In leasing, you're only paying for the portion of the vehicle you're using, including the inception fees required to start the lease, and the termination fee required when it ends. Additionally, the money factor (a lease version of an interest rate) is also rolled into your payment and is typically lower than a bad credit auto loan interest rate.
Because you're only leasing the car for a short time, though, you may find it hard to get out of your lease early. Breaking a lease usually means making the remaining payments all at once, often with an early termination fee tacked on. If you're determined to do this without the cost, you might be able to transfer your lease to a third party – as long as this is allowed by your lessor, and the person assuming your lease qualifies.
Buying:
When you finance a vehicle with an auto loan, you're going to pay the entire cost of the car, which means your monthly payment is likely to be higher than in leasing. If you have poor credit, your payment is going to be even higher, due to the higher interest rates that typically come with bad credit auto loans. However, since you're going to own the vehicle at the end of your contract, you're free to do many things that you can't do when you have a leased car.
For instance, because you’re buying the vehicle, you're free to customize and upgrade the car as you see fit. You can also drive to your heart’s content – something you'd have to pay for in a lease due to mileage limits. You're also able to keep your vehicle as clean, or as messy, as you want. When you lease, this isn't an option, since cars have to be kept in good condition; any damage or wear and tear considered excessive at lease turn in is going to cost you.
With a loan, especially as a bad credit borrower, one thing you have to do is provide a down payment. This is actually one of the best things you can do for a loan on a vehicle. Typically, subprime lenders that work with poor credit consumers require at least $1,000 or 10% of the car selling price down, often whichever is less.
When you make a down payment, it allows you to borrow less, which can save you money. The less you borrow, the less you have to pay back, which means you pay less in interest charges over your loan term (which can be significantly longer than a lease term).
Leasing vs. Buying: Which Should You Choose?
Though both leasing and buying have their pros and cons, what's best for you comes down to your vehicle needs and credit situation. But, if you're a bad credit borrower, financing with an auto loan may be the better – and maybe the only – option for now. With a bad credit auto loan, you have the opportunity to get the car you need while repairing your credit so that the next time around, leasing may be easier.
If purchasing sounds like the way to go for you, we want to help. Here at CarsDirect, we work with a nationwide network of special finance dealerships that have the lending resources available to finance bad credit borrowers. To get started finding a dealer in your local area, simply fill out our fast, free, and easy car loan request form today!