The short answer is no – a lease to own contract is not the same as traditional auto leasing. We breakdown some specifics you should know about each option, and which makes sense for your credit situation.
Lease to Own Cars
Lease to own auto contracts are offered at buy here pay here (BHPH) dealerships. They’re also called rent to own agreements.
A key thing to understand about rent to own agreements is that they aren’t loans. This means there isn’t a lender that paid for the vehicle, and now you’re paying the lender – a lease to own agreement means you pay the dealer directly until you’ve paid off what you owe. Because it’s not a loan, there also aren’t any interest charges to worry about.
In the end, you get the name in your title and own the car. Similar to vehicle financing, you’re responsible for covering auto insurance and any other regular maintenance during the agreement.
Lease to own agreements are popular with borrowers that have tarnished credit histories. Many BHPH dealerships don’t review credit reports during the approval process, making it easier for bad credit borrowers to get approved for an agreement like this. However, credit repair may not be possible – lease to own contracts aren’t typically reported because they're not a form of credit.
Highlights of lease to own cars include:
- The dealer keeps their name on the title until the agreement is done
- Used cars only
- No interest charges
- No mileage limits
- A credit check may not be required
- Weekly payments might be required
- Able to return the vehicle at any time, typically without penalties, but you forfeit all previous payments
- Agreement and payments may not be reported to the credit bureaus
Traditional auto leasing doesn’t automatically include the end goal of owning the car. Many lessees go for an auto lease because they want to drive a new car for a few years, return it, and lease another brand new vehicle. Leasing typically offers lower monthly payments as well, making it attractive to borrowers looking for a low monthly payment on a new car.
Leasing companies offer traditional auto leases, and in most cases, it’s for brand new vehicles only. Leasing companies typically have high credit score requirements, too, making it difficult for borrowers with credit challenges to qualify for a car lease.
When you lease a car, you’re paying for the depreciation of the car while you’re driving it. The title isn’t in your name during the lease, and the leasing company owns it. The total cost of your lease is predetermined, and you make payments until you’ve paid everything you owe to the leasing company. Once the lease term is over, you’re typically offered the chance to finance the car for its residual value which is the estimated value of the car at the end of the lease.
Car leasing highlights include:
- Typically only available for new vehicles
- Security deposit(s) may be required
- Money factor fees (leasing interest rate)
- Mileage limits
- Full coverage auto insurance required
- Manufacturer warranty included
- The lease is reported to credit bureaus
- Bad credit borrowers may struggle to get approved
Which Is Better for Poor Credit?
If your credit is worse for wear, then traditional auto leasing may not be in the cards for you. Borrowers with a credit score below 660 tend to have issues meeting a leasing company's credit score requirements.
Qualifying for a lease to own agreement is generally much easier for borrowers with bad credit. Oftentimes, the credit check is skipped, so if you meet income requirements, you’re likely to qualify despite a lower credit score.
Opting for a lease to own contract may not be in your favor long-term, however. Since it’s not a loan, the payments aren’t typically reported, so your credit history isn't positively impacted, even if you make all the payments on time. If you’re concerned about credit repair, financing a vehicle may be a better route.
Other Vehicle Options for Bad Credit Borrowers
If your poor credit has gotten in the way of qualifying for an auto loan or car lease, then it may be time to consider a subprime lender. These lenders specialize in assisting borrowers with less than perfect credit. They’re signed up with special finance dealerships.
Instead of just using your credit score and income to judge your ability to repay the loan, they also look at your overall stability. This usually includes things like your living expenses, residency history, work history, and other factors. Stability is the name of the game when it comes to subprime financing. And if you qualify, credit repair can be possible.
Subprime car loans are reported to the credit bureaus. With good loan management and a close eye on your credit reports, you can improve your credit for the better. It’s tough to repair your credit if you don’t take on credit that’s reported. A lease to own agreement may be a good, short-term solution to your no-car problem, but it probably isn't going to fix the issue that caused your poor credit or help you recover from it.
Get Back On the Road With Our Help
If you need to find a solution to your auto loan situation that both helps get you into the vehicle you need and repairs your credit, Auto Credit Express is here for you. We have a nationwide network of special finance dealerships that are ready to assist borrowers that need vehicle financing. Instead of looking all over town for a dealer that has the resources you need, get with us instead.
Fill out our free auto loan request form and we’ll look for a dealership in your local area with no obligation or cost.