To lease or to buy. This is often the question when you’re ready for another vehicle. Both financing routes have their pros and cons, but when you’re struggling with credit issues, you may find that getting approved for a lease won’t be as easy as qualifying for financing.
Leasing a Car
The steps in the leasing process follow the same general rules no matter where you go. However, you may find it difficult to get approved for leasing if you’re dealing with subpar credit scores. Typically, you need a FICO score of at least 700 to qualify.
The process of leasing a car involves several steps:
- Research – Think about vehicles that meet your needs and the type of car that fulfills your wants. Then, check safety ratings and reliability so you can make a practical choice that fits your budget.
- Find a dealer – Check local lease deals and inventory.
- Test drive cars – Be sure to test drive the vehicles you’ve researched. Don’t be swayed by a salesperson and a sweet sounding sports car if you need a family vehicle.
- Negotiate price – Keep the overall cap cost in mind, not just the monthly payment. Don’t forget to add extra miles, if necessary.
These are the basic steps in the leasing process, but they’re only a part of the information you need to be ready to lease a car. Another thing to keep in mind is how the financial impacts of leasing differ from buying.
Knowing How Leasing and Buying Differ
There are certain parts of the car leasing process that correlate to the car buying process. From the lists below, you can see that the basic financial aspects of a lease and a purchase are similar, but have some key differences.
Leasing Terminology:
- Leasing – The process of financing a vehicle for a set amount of time, usually 24 to 48 months. Monthly payments are based on the estimated amount of depreciation plus the money factor over the lease term. Lessees have the option to turn in the car or purchase it at the end of the term.
- Capitalized cost – Negotiated selling price of vehicle plus any additional fees.
- Residual value – Value of the car at the end of the lease set by the leasing company; also, the amount a vehicle can be purchased for after the lease term.
- Cap. cost reduction – A prepayment for a portion of the lease.
- Money factor – The amount charged for financing, expressed as a decimal.
Buying Terminology:
- Buying – The process of financing a vehicle for a set amount of time, usually 48 to 84 months. Monthly payments are based on the total purchase price plus interest over the term of the loan. Ownership is achieved at the end of the loan term.
- Purchase price – Negotiated selling price of the car plus taxes and fees.
- Down payment – An amount of money that's paid up front that reduces the amount being financed.
- Interest rate – The amount charged for financing, expressed as a percentage.
As you can see, most of these aspects line up. However, notice that the list of buying terminology is shorter. This is because residual value is a unique concern in leasing, and there's no equivalent in the buying process that it compares to.
Is Leasing Right for You?
Before you jump into the car leasing process, you should consider the factors that make a lease worthwhile. Leasing can be a great option if you’re the kind of person who wants to have a new vehicle every few years, or if you don’t do a lot of driving.
But, because a leased vehicle gets turned back in when the term is up, you have to take care of the car. So, if you’re a bit accident prone, or aren’t the type to keep your vehicle clean, you may want to reconsider. Another factor to consider is that leasing has built-in mileage limits, and going over can cost big bucks when it’s time to turn in the car.
If Leasing isn’t for You
Leasing’s not for everybody, and if you’re one of those people who might not be the right candidate, there’s good news: you could still be eligible to finance a car, even with less than perfect credit. Auto Credit Express can help.
We work with a nationwide network of special finance dealers that can help people who are struggling with credit issues. Simply fill out our no-obligation auto loan request form and we’ll get to work matching you with a dealer that has the lending resources to help. It’s fast and free, so what are you waiting for? Let us help you today!
