Both subprime car loans and lease to own financing are options for many credit-challenged buyers
Choosing a loan type with tarnished credit
Here at Auto Credit Express, we recently had a consumer make this statement before submitting an application: "I need info for how to get a leased to own car. My credit is not great. Please contact me soon. Thanks."
The only issue we have with lease to own financing is that even if all the payments are made on time, unlike a subprime car loan, the borrower may be in the same credit situation the next time he or she needs a car.
Lease to own versus subprime financing
Here are some of the major differences between new car leasing and lease to own financing:
Credit checks: Subprime always requires a credit check and both the loan as well as monthly payments are reported to the credit bureaus – enabling borrowers to reestablish their credit and raise their credit scores. Lease to own financing typically doesn't require a credit check and payments on these loans are not always reported to the credit bureaus.
Down payments: Subprime car loans usually down payment of $1,000 or 10 percent of the amount financed, whichever is less. Lease to own financing programs, on the other hand, normally require down payments that represent a higher percentage of a vehicle's value.
Types of vehicles: Vehicles in subprime auto loans are either new or usually no older than 7 years with fewer than 100,000 miles (with most considerably newer with fewer miles. Lease to own vehicles are usually older used cars with no mileage limits.
Vehicle maintenance: New cars are covered by manufacturer-backed new car warranties, while service contracts – many times covering the entire loan term - are available for most used cars. In most cases, lease to own vehicles are not covered by any warranty - if they are, the coverage is usually very limited.
Interest rates: Interest rates for subprime car loans average between 14 and 22 percent The interest rates charged by most lease to own car dealers average between 20 and 30 percent, with some going much higher.
So if the credit of the consumer who made the statement is really bad, his or her only choice may be a lease to own vehicle. But if their credit is better, they might want to consider a subprime car loan.
The Bottom Line
There is certainly nothing wrong with a lease to own vehicle if a borrower's credit is really bad and they have no other alternative. On the other hand, if they can qualify for a subprime loan, the advantages include newer vehicles with lower miles, vehicle warranties that often cover the entire loan term and the chance to reestablish their credit and improve their credit scores.
One more tip: Auto Credit Express matches applicants with credit difficulties to new car dealers that can offer them their best opportunities for approved auto loans.
So if you're ready to reestablish your car credit, you can begin now by filling out our online car loan application.