When it comes to getting your first car, make sure you look at where you stand credit-wise. Your credit score influences whether or not leasing or financing works best for you. Once you know where you stand, the next step is to understand the differences between leasing and financing.
Leasing a Car
When you lease a car, you’re essentially using a vehicle for a set amount of time. You decide on a lease term, and return the car when the time is up. In a lease, you pay for the vehicle's depreciation (the difference between the negotiated price and the car’s residual value at the end of the lease term) during the time you have it as well as interest charges.
Because you’re only paying for interest charges and the vehicle’s depreciation, your monthly payments will be lower compared to financing. You also don’t need to worry about a down payment on a lease – it doesn’t help you save money since it only pre-pays the lease. The best benefit to leasing? Lower monthly payments. In addition to lower monthly payments, leasing typically involves new vehicles that are covered by a manufacturer warranty.
Leasing may sound great, but there are drawbacks, too. These include strict credit requirements, mileage restrictions, excess wear and tear fees, and typically little chance to gain equity in the vehicle. Generally, you have to have good to excellent credit to qualify for a lease. Mileage restrictions aren’t a big deal as long as you're realistic about how many miles you drive. Just keep in mind that if you go over the limit, you’ll need to pay for any excess miles. Finally, if the car has damage beyond normal wear and tear at the end of the lease term, you’ll get charged for it.
Financing a Car
When you finance a car, you’re making monthly payments toward vehicle equity and owning it outright. The lender owns the car until the loan is paid off, but once you do, you own it free and clear and only have to cover maintenance, fuel, and insurance costs.
You also don’t need to worry about excess wear and tear. You can choose when to fix the vehicle on your terms and needs. The only time you’ll need to worry about wear and tear is when you decide to trade it in or sell it. What’s even better about financing a car is that once you’ve paid off the loan, the value of the vehicle becomes equity, which you can use later.
You also don’t need excellent credit to apply for a loan as some dealers have subprime finance departments that are designed to help credit-challenged car buyers.
The Bottom Line
While it’s possible to lease a car, getting approved with less than perfect credit can be tough. And even though it costs more, in the end, financing a vehicle helps you build up credit over time. The hardest part – especially if your credit is bad – is finding a dealer willing to work with you, and that’s where we can help.
Here at Auto Credit Express, we work with a nationwide network of special finance dealers that help people with bad credit, no credit, and even bankruptcy get into the cars they need. Unlike many dealerships, these special finance dealers have the lending resources available to work with credit-challenged consumers. Simply fill out our fast, free, and no-obligation auto loan request form today and we’ll get started on providing you with the local dealer you’ve been waiting for!