What consumers with problem credit need to know when it comes to the credit scores needed to either lease a car or finance one with a traditional auto loan
Leasing A Car With Bad Credit
15 years ago during the great recession (and even before that), leasing a car was generally not an option for consumers with bad credit. But with the upturn in the economy, a number of captive lenders, including Kia Motors Finance, have made it possible for some buyers with credit issues to lease vehicles.
Here are a few things you have to keep in mind if you have blemished credit and you're thinking of leasing:
- Not all lenders offer leasing programs to buyers with tarnished credit.
- Those great $ 199-a-month "Sign and Drive" leases are only available to consumers with the best credit scores.
- At the same time, if you have fair credit and qualify for a lease, it will likely be at a lower program tier (the lower the tier, the more expensive the lease) with a higher interest rate (in leasing it's called the "money factor") and may require a security deposit (possibly more than one) in addition to the typical fees and the first month's payment upfront.
If you qualify, you should also be aware of the limitations that are a part of leasing:
- Leases come with mileage limitations. Do you drive a lot of miles? You'll want to add those miles into the lease upfront. Otherwise, you could find yourself with a hefty bill when you turn the car in.
- Do you take care of a car? Answering "no" means leasing isn't for you. Turning in a car at lease end that has more than normal "wear and tear" means you'll be charged the cost to repair any excess damage.
If those concerns don't bother you, you'll find that leasing a vehicle is a great way to stay within your budget and build your credit while driving a new car.
Our experience
Consumers with bad credit often either don't know the different types of credit scores, what these numbers mean, or even what they are before applying for an auto loan.
At Auto Credit Express we know this is true because we've spent over two decades helping buyers with poor credit searching for online auto loans find those dealers that can offer them their best chances for a loan approval. Our website even contains a resources section that helps answer one of the most frequent questions we get asked: "What credit score do you need to lease a car?"
What Credit Score Do You Need To Lease A Car?
Before submitting an auto loan application, consumers should order all three of their credit reports (from Equifax, Experian, and TransUnion) and at least one of their credit scores. One report per year from each bureau is free and they can be ordered at www.annualcreditreport.com. Credit scores, however, are not always free and may incur charges depending on where you receive your score from. Searching for your scores through myFICO, Equifax, Experian, or TransUnion, the major national credit bureaus, almost always means getting charged for your score. There are also several ways to get your credit score for free, including on some of your credit cards, through your bank, or through services like Discover Scorecard.
This process can be simplified by paying a fee to sites where you can receive all three reports and all three credit scores at the same time.
Credit scores
All three bureaus still use a version of the most widely-used score from FICO, which ranges between 300 and 850. There higher your number, the better your credit. However, in collaboration, the three national credit bureaus also created VantageScore, which uses the same 300-850 range as a FICO Score.
Adding to the confusion is that in a perfect world, all three of your VantageScores or FICO scores from the different credit bureaus would be the same. But the fact is they aren't.
The reasons behind the differences
Unless a credit file is fairly new, there will usually be differences in each credit report and in the credit score from each bureau because:
1. Some creditors may report to only one or two of the bureaus.
2. It may take one bureau longer than another to update new creditor information
3. It may take one bureau longer than another to delete an old credit file
4. One, two, or even all three reports may be showing inaccurate or incomplete information
These reasons plus more can result in credit score differences. To complicate matters further for those applying for a car loan, dealers can often request an "auto enhanced" credit score that emphasizes auto loan performance. This means the score they are looking at could also be different.
Classifying Credit Scores for Car Leasing With Poor Credit Score
Now that we understand the basic background of credit scores it's time to see where they fall within typical lender classifications to see what kind of auto loan an applicant might qualify for.
As an example, here is Experian's classification system for both types of credit scores:
- Super Prime:
FICO Score: 800-850
VantageScore: 781-850 - Prime:
FICO Score: 740-799
VantageScore: 661-780 - Non-prime:
FICO Score: 670-739
VantageScore: 601-660 - Subprime:
FICO Score: 580-669
VantageScore: 500-600 - Deep subprime:
FICO Score: 300-579
VantageScore: 300-499
In this case, super prime is the best of the best, prime is excellent and near prime is fair credit. Most applicants that qualify for a new car lease will fall into either the super prime or prime categories. Applicants in either the subprime or deep subprime category will probably have to apply for a high-risk car loan.
Chapter 13 Bankruptcy
Now that we have that out of the way, let's take a look at leasing a car during a Chapter 13 bankruptcy. Keep in mind that we are not lawyers and this portion of the article in no way constitutes legal advice.
Once you've filed for bankruptcy, you are required to follow all the rules and procedures set by the court. If you're in a Chapter 13 bankruptcy, this means that, in order to take on any additional debt, you'll have to go through the trustee that was appointed by the court. In this instance, you'll need to contact your attorney who will then draft the proper motions that will be given to the trustee explaining why you need a car. After clearing that hurdle, the trustee will then determine if you can afford to take on more debt during your bankruptcy, then make a recommendation to the court.
But before you can do this, you'll need to visit a dealer that works with buyers who are currently in bankruptcy. That's because the trustee will require you to furnish a description of the car (or one just like it), as well as the monthly lease payment. But your biggest hurdle will be finding a lender willing to lease you a vehicle while you're in bankruptcy.
Since more lenders, especially those who work with subprime buyers, offer financing rather than leasing, our suggestion would be to consider a bad credit car loan, rather than trying to find a lender – through a dealer – that's willing to lease you a vehicle. Obviously, you'll want to get your lawyer's advice before considering anything.
As we see it
By ordering all three credit reports and at least one credit score before beginning the car shopping process, applicants will typically know beforehand which type of auto loan they'll need to apply for.
Furthermore, if the credit score indicates that there may be problems applying for credit from a traditional lender, we want you to know that at no charge to applicants Auto Credit Express matches people that have experienced car credit difficulties with those new car dealers that can offer them their best chances for auto loan approvals.
So if you're ready to reestablish your auto credit, you can begin now by filling out our online auto loan request form.
