Leasing a car is typically considered to be more affordable than buying a vehicle because you're not paying for the entire price of the car, only the portion of it you use. A lease term is usually shorter than a loan term, and the monthly payment is often lower. Of course, you have to qualify for a lease first – which isn't always easy when you're working with poor credit.
Differences Between Auto Loans and Leasing
When you finance a car with an auto loan, you're signing a contract to pay the entire amount of the vehicle, plus interest, taxes, and fees. Loans generally last anywhere from 48 to 84 months, and the lower your interest rate is, the less you pay to borrow the money. Additionally, you're able to shop from a wider selection of cars if you get an auto loan.
Leased vehicles are usually new cars, which gives them a higher initial manufacturer suggested retail price in many cases. This means they start out at a higher price than some of the vehicles you may be able to finance with an auto loan.
A car lease not only starts out with a higher price, it typically only has a 24- or 36-month term. However, you're only paying for the estimated cost of depreciation for that time frame, plus the money factor (which is like an interest rate) and taxes, instead of the entire cost of the vehicle. Because you're only paying for a portion of a car for a short amount of time, this means your monthly payment is typically lower.
When you have poor credit, leasing can also come with additional fees and requirements, possibly even including money due at signing. These extras may make that lower monthly payment not seem like such a great deal after all, especially since you have to turn in the vehicle at the end. You don't get to keep it unless you buy out your lease, and that may not be an affordable option.
Is Leasing Right for You?
In order to know if leasing a car is a better deal than buying a vehicle, you need to know what goes into a lease, and if it makes sense for your financial situation. When you get a lease car – if you can qualify with poor credit – you're paying for the value of the vehicle over the time you have it. But, as a bad credit lessor, you're likely going to be charged a higher money factor than someone with good credit. This increases the monthly payment.
Leases typically don't require a down payment, but with a lower credit score, you may be asked to make a security deposit. Doing this isn't like making a down payment on an auto loan, since everything about a lease is pre-calculated. A security deposit is held by the lessor in case there's anything that needs to be paid for at the end of a term, such as extra mileage or excessive wear and tear.
With a loan, the larger the down payment used, the less you borrow, and the more you save in interest charges. Even if you were to make a down payment (in addition to a security deposit) on your lease, it wouldn't save you any money overall – it only pre-pays some of what you owe.
Other Costs That Can Really Add Up in Leasing
If you're still trying to decide if leasing is a better deal, consider these points:
- Ownership – You don't officially own a vehicle you're leasing, so you can't customize it or make changes to it.
- Insurance – Lease cars typically require a higher deductible and coverage limit for insurance, which can add up quickly.
- Condition – The vehicle must be returned in good condition. Any wear and tear deemed "excessive" is going to cost you extra.
- Mileage – Leased cars also come with mileage limits, and going over mileage generally costs around 25 cents per mile.
- Lease end – When you're done with your leased vehicle, you turn it in and either have to lease again, buy the car, or shop for something to buy. You'll have to make this decision every few years if you continue to lease.
If you opt to lease when you're dealing with credit issues, you may have a slim chance for an approval. Lessors typically only approve people with higher credit scores.
However, if you decide to go for an auto loan, and you're dealing with credit challenges, there's a good chance you can get a car loan if you find a dealership that can work with unique credit situations. In most cases, these dealers are signed up with lenders called subprime lenders, who can typically help bad credit borrowers when others can't.
Ready to Finance Your Next Vehicle?
If you decide leasing isn't the right route for you and you're better off getting a bad credit auto loan, let us help. Auto Credit Express works with a coast-to-coast network of special finance dealerships that are teamed up with lenders that assist people who are struggling with credit.
Since special finance dealers don't always stand out from the crowd, you could find yourself driving around in circles looking for the right type of car loan. Or, you could start right here by filling out our auto loan request form. As soon as you do, we'll get to work matching you to a local dealership.