What You Need to Know about Leasing a Car 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.


, - November 20, 2019

Leasing a car with bad credit is never as easy as it is with good credit. Lease deals are typically offered with the best credit buyers in mind, but that doesn’t mean you can never lease if you have poor credit. Depending on your credit situation, doing a bit of searching could help you find a lease you qualify for.

Differences between Leasing and Buying

Before you can look for a lease deal for your bad credit situation, you need to know the basics of leasing and how it differs from car buying. Many people think that leasing is a great option because it typically comes with lower monthly payments than an auto loan, and you’re always driving a new vehicle. Though these things are true, leasing has its own set of pitfalls to watch out for.

Let’s look at some other key differences between leasing and financing:

Leasing Buying
Don’t own the vehicle, so you can’t make changes or upgrades to it or its equipment Ownership comes with many perks, such as equity and the ability to customize your car
Must maintain its condition or be charged an excess wear and tear fee at lease end, which means keeping it clean and repairing dents and dings Can care for the vehicle however you see fit, and you don’t have to repair things like minor dings if you don’t want
Can only drive a set number of miles, anything over and above the limit is likely to cost 25 cents per mile Freedom to drive as much as you want
Higher insurance coverage required, resulting in higher premiums Full coverage insurance premiums typically lower
Lease-end charges, difficulty terminating lease before end of term Can trade in or sell the car you’re financing at any time

Car Leasing Basics

In leasing, you never own the car, so unless you purchase it at the end of your lease term, you never have the opportunity to benefit from any vehicle equity. Also, there are some key differences in the terminology and function of leases versus loans.

In leasing, there are three terms that you don’t find in financing:

  • Capitalized cost – Also called a cap cost, this is the amount being financed in a lease, including the negotiated car price plus fees. A cap cost usually includes an acquisition fee, depending on the lessor. Sometimes, these fees are required up front, known as “cash due at signing,” rather than being allowed to be financed.
  • Cap cost reduction – This is roughly the equivalent of a down payment in a financing scenario. The major difference is that in leasing, a cap cost reduction doesn’t save you money in the long run like a down payment does on an auto loan. This is because the cap cost of a lease includes pre-calculated interest, so the amount you pay overall is set ahead of time and there's nothing you can do to change that. A down payment saves you money overall in financing because interest accrues daily based on the loan balance, so the more you pay up front, the less there is to charge interest on for the remainder of the loan.
  • Money factor – A money factor is the interest rate on a lease. It’s pre-calculated and rolled into your cap cost. You can calculate your interest rate by multiplying the money factor by 2,400. The money factor is typically a small decimal number, for example: 0.00415; your interest rate based on this example is almost 10% (0.00415 x 2,400 = 9.96). As a lessee with poor credit, if you qualify, you’re likely to see a higher money factor than lessees with better credit.

Buying May Be a Better Option for Bad Credit

For several reasons, buying may be a better option when you have bad credit, the first of which is that leasing a vehicle with bad credit isn’t always possible. You’re much more likely to find lenders that finance credit-challenged consumers – called subprime lenders – than you are to find a lessor that’s able to get you into a lease.

At the end of a lease, you’re faced with a choice: return the car and walk away, lease something else, or buy the vehicle. Many people in this situation choose to lease again, which leaves you with constant car payments on vehicles you never own. When you finance, the payments eventually come to an end, and you’re free to keep or sell your car without having to deal with any additional payments or paperwork.

All in all, whether you decide to lease or buy with bad credit is up to you. It all comes down to where you can get the best deal, and what you can ultimately afford. Make sure you weigh your options, and when you’ve decided which route to take, come to us first.

Here at CarsDirect, we can help you research vehicle options, find new and used cars, and explore lease deals. When you’re ready to find a dealership to work with, fill out our fast and free auto loan request form, and we’ll work to connect you to a dealer in your area. What are you waiting for? Get started right now!

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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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