Benefits of Leasing vs. Buying with Bad Credit
Leasing a car can be an attractive option for many consumers with poor credit. Instead of getting stuck into a long-term loan with a high interest rate, leasing a new car may be advantageous for several reasons, including:
- Low monthly payments.
- Purchasing a car (instead of leasing) will usually result in a higher monthly payment because:
- You'll have a longer contract.
- The amount you owe is greater.
- Less maintenance worry.
- Low down payment.
- New cars will sometimes require more money down up front.
- Improving your bad credit.
- Not missing a payment on a lease can help you boost your credit, leading to a better deal on a loan for a new car next time around.
Issues with Bad Credit Leasing
Though leasing might be a good option if you're tight on cash and have a poor credit history, it can be difficult to qualify
. Most low-interest and “no down payment" lease incentives are based on credit approval. Cars Direct states if you don't have a credit score above 720, those good deals might not be available.
Other difficulties you may encounter when leasing a vehicle with bad credit include:
- A high interest rate.
- According to Cars Direct If you have a credit score under 680, it is often considered “subprime" and can result in a higher interest rate.
- A more difficult time getting approved.
- Sometimes leasing can be more difficult to quality for than a loan for a new or used car.
- A security deposit may be required.
- Leasers with a good credit score can qualify with little or no money down; if your credit is less than stellar, you may not have this option.
Tips for Lease Approval with Bad Credit
Just because leasing a new car with bad credit can be difficult doesn't mean it isn't doable. Here are a few common tips
you can use to get approval for a new car lease, even if you have a few blemishes on your credit history.
If you have bad credit, look for inexpensive cars
—even if you think you can afford something nicer.
The cheaper option will be easier to qualify for
and have lower monthly payments. Getting tangled up in a lease that will push you to the maximum end of your budget will only result in more problems if something goes wrong with your finances.
A good place to start your search is to look for new cars at the end of the year when dealerships get new models or are close to sales incentives. When manufacturers become more motivated to move inventory
, it's often easier to get financed
When you have bad credit, it can be tempting to jump at the first dealership that approves a lease. To get the best deal, it's important to
be patient and shop around
.If you can, get lease quotes from as many dealerships as possible. Once you find a car you want, use the quotes from other dealerships to your advantage
. The competition from other automakers can help you to qualify for a vehicle you might otherwise have been turned down for due to your bad credit, and in turn get a lower rate.
Get a Copy of Your Credit Report
Each time you try to qualify for a lease, the dealership will run a credit check
. The problem is that each credit inquiry can slightly lower your credit score. If you already have bad credit, this can add up.
To avoid this, get a copy of your credit report
and take it to each dealership. This will keep multiple credit report requests from negatively impacting your score.
Note that if there are a certain amount of credit checks within a given time period, the dealership may take into account that you are indeed shopping for a car, and that's the reason for multiple inquiries.
Consider a Lease Takeover
A lease takeover lets you take over a lease contract from a person no longer able to make required payments. While a lease takeover will still be subject to approval from the original financer, qualifying is often much easier
Consider this an option if you haven't been able to qualify for a lease on your own.
Make a Down Payment
With a bad credit score, some dealerships will require a percentage of the cost of the vehicle to be paid up front
Usually, the amount of the down payment isn't too extreme for a leased vehicle. But if you agree to put more money down or ask if you can pre-pay the first several months of the lease, you may find that it's easier to qualify.
Get a Co-signer
If you can't qualify for a lease, check with a family member to see if they're willing to be a co-signer
. A co-signer can make it easier to qualify if they have good credit, since he or she will become responsible for payments should you go into default.
Show Proof of Income
Proof of an adequate income will be necessary to qualify for a lease on a new car. You'll be more likely to get approved if you can
- Show that you make a steady income.
- Bring several of your past pay stubs into the dealer for proof.
- Prove that your salary allows you to pay BOTH your monthly lease and your other bills.
- Provide several personal references to show you're a not a credit risk.
If you're still having trouble qualifying for a lease, don't give up. If you pay down as much of your debt as possible you'll improve your credit score
, which may allow you for approval in a few months.
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