There is a reason consumers with questionable credit usually will not qualify for a new car loan program involving leasing and particularly a sign and drive lease
What we know
Applicants for auto loans that have poor credit often pose the question "how does auto leasing work" and want to know if there is a chance they might qualify for this type of financing.
At Auto Credit Express we know why this question is asked because we've spent more than two decades helping car buyers with bad credit searching for online auto loans find those dealers that can offer them their best opportunities for an approval.
The fact is buyers ask this question because in most cases new car leases require little or no down payment. This also means that it is tough to get any type of lease if you've had credit problems.
So why is this true and how does auto leasing work?
Sign and drive car leasing
To begin with, sign and drive is a type of new car finance program. More specifically, the term refers to type of new car leasing program. With a sign and drive lease, qualified buyers can start the lease by paying only taxes due plus the title and license fees. It's called "sign and drive" because most vehicle leases require buyers (lessees) to also come up with the first monthly payment plus a security deposit as part of the upfront fees charged at the time of delivery.
Car leasing with low FICO scores
Practically all subprime auto loans – that is, loans for consumers with poor credit - are for retail financing - not leasing. Not only is leasing rarely available to credit-challenged customers, the "sign and drive" option is typically only available to those lease customers with the best credit scores.
Knowing this, it's easy to see why people with credit issues don't qualify for this kind of new car financing.
As was noted previously, one of the main reasons applicants with credit problems ask about a sign and drive program is because they can't come up with the required down payment amount. This is because nearly all high risk auto lenders require a down payment in the form of cash or real trade equity – in most cases either ten percent of the selling price of $1,000, whichever is less. Lenders do this to increase the chances that borrowers will make regular and timely loan payments.
If you're wondering why, look at it from the lender's perspective: with little or no money invested - especially early in a loan when a vehicle is almost always worth less than the loan balance - it's much easier for a buyer to just walk away from the loan. But with their money invested, it's far more likely these same borrowers will choose not to default and will continue to make payments.
As we see it
Car buyers about to begin the credit repair process shouldn't be discouraged if they're unable to qualify for a sign and drive lease. While this particular program is probably not an option for them right now, there is something that can be done that could enable them to eventually qualify for one.
We're talking about taking the first step and applying for an auto loan with a higher-risk lender. By making these payments on time borrowers can establish their auto credit, raise their FICO scores and, in time, qualify for some type of new car leasing - maybe even one of those sign and drive programs.
In fact, Auto Credit Express specializes in helping applicants with car credit issues locate those dealers that can give them their best chances for
approved auto loans.
So if you're ready to reestablish your auto credit, you can begin now by filling out our online auto loan application.