Car leasing can lower your monthly payments but if your credit scores are less than perfect you might be confusing rent to own with auto leasing
Consumers with problem credit typically ask us about auto leasing because they’re either looking at more expensive vehicles or they want to keep their car loan payments as low as possible. In some cases they may even be thinking that dealers that advertise lease to own or rent to own autos are offering this type of financing.
At Auto Credit Express we understand how this can happen because we’ve spent over twenty years helping car buyers with damaged credit find a dealer that can arrange for approved auto loans. But the fact is there’s a great deal of difference between conventional auto leasing and lease to own auto financing.
But first you have to understand the differences between auto leasing and retail financing.
Car lease payments are typically lower than regular finance payments because leasing only deals with a portion of a vehicle’s value. For example, in the case of a 2 year lease, the lessee is paying the interest expenses and the vehicle depreciation costs (its loss in value determined by the leasing company) for just the first 24 months of the vehicle’s lifecycle.
Leases also typically don’t require down payments. They’re really only necessary if you want to lower the monthly payment amount and, besides, they don’t save you any money on interest expenses because you’re just prepaying the lease amount.
More importantly, the value of the vehicle being leased is usually less than the lease buyout during the entire lease period. This means that if the person leasing it misses or stops making payments, the leasing company faces a greater chance of losing money if the car is repossessed. Because of this, lenders consider leasing to be riskier than conventional car financing.
The result of this is that lenders usually offer leases only to their most qualified customers – consumers with very good to excellent credit. What this means, in a nutshell, is that there is no best way to lease a car with bad credit because consumers with low FICO scores won’t qualify for these programs.
Conventional car financing
Buying (retail financing) means paying for the entire cost of a car including taxes and fees, minus the down payment in a number of equal payments over a specified loan term. Interest rates can range anywhere from zero percent for special manufacturer-backed loan programs (from captive finance companies such as Ford Credit and GM Financial) for buyers with excellent credit to as high as twenty-nine percent or more (depending on state usury laws) from subprime lenders for people with very low credit scores.
Buyers with good credit often don’t even need a down payment, while higher risk lenders usually require a minimum of ten percent or $1,000 down – whichever is less. Retail financing, as you can see, also covers the widest range of customers – from those with excellent credit to those with near-prime and even subprime credit.
Lease to own
Car shoppers also shouldn’t confuse the term “rent to own” or dealers that offer used car leasing with traditional new car leasing programs. Rent to own dealers as well as car lots that offer used car leasing – sometimes with a “lease to own” option typically require large down payments and come with high interest rates. This also means that the vehicles they rent or lease also come with high monthly payments – especially considering the fact that most of them are older, higher mileage used cars.
Another auto finance choice for credit challenged car buyers
The bottom line to all of this is that if you’re currently in the process of rebuilding your credit after previous financial problems, chances are you won’t qualify for any kind of new car leasing program. But before considering a BHPH car dealer or one that offers either a rent to own or lease to own program, we’d like you to take a look at another option.
That option is at websites like Auto Credit Express where we specialize in helping applicants with car credit issues find dealers that can give them their best chances at auto loan approvals.
So if you’re ready to reestablish your auto credit, you can begin now by filling out our online auto loans application.