Leasing a car is a big commitment, although maybe not as much of a responsibility as an auto loan. While leasing can be cheaper month to month compared to a loan, there can be more fees with leasing, like a security deposit.
Purpose of a Leasing Security Deposit
The purpose of any security deposit is to cover the cost of fixing any damage done while you used something, and the same goes for leased vehicles. If you’ve ever rented a house or apartment before, you’ve probably had to front a security deposit that was due at signing. They can be expensive, but they’re often refundable if you keep the place in good shape.
In many leasing contracts where a deposit is required, it’s typically equal to one lease payment rounded up to the nearest $50. If your lease payment is $338, your security deposit is likely to be around $350. This varies, but it’s a good rule of thumb to help you plan for it.
When you return a leased car, it's inspected for wear and tear. If anything is found that needs to be repaired before the vehicle can be resold, the cost comes out of your security deposit. If you have what the leasing company deems “excessive wear and tear,” you may even be charged out of pocket to cover the cost above and beyond the amount you put down in your security deposit.
However, if you keep the car in tip-top shape and fix any issues that come up as they happen, the security deposit may be refundable at the end of your lease term, depending on the language in your leasing contract.
If you’re a clean commuter, and you have the disposable income to cover unexpected repairs and maintain a vehicle, having to pay a security deposit could be well worth the ability to drive a new car without the hefty price. If you’re not concerned with customizing your vehicle, or if you don’t drive that often, a lease could be a great deal for you. The security deposit may be a small price to pay for the convenience of leasing, in addition to the lower monthly payment.
Bad Credit Borrowers and the Cost of Leasing
If you have less than perfect credit, you may end up having to spend more on a lease than you want to.
Not every leasing company requires a security deposit for all their lessees. Many times, they’re issued to borrowers with bad credit, though. Since lessees with lower credit scores are viewed as higher risk, lessors tend to charge extra for the leased car in the form of a security deposit, or possibly even multiple deposits.
Borrowers with lower credit scores can run into problems getting approved for a lease, too. The majority of leases are issued to borrowers with the best credit scores. Lessees with poor credit are also likely to be charged more via the money factor (interest rate of a lease) if they get approved. When you apply, your credit score places you in a tier – the best credit scores are typically assigned the cheapest money factors.
If you’re considering leasing with a lower credit score, and you don’t want to pay a security deposit which may or may not be refundable, going for an auto loan might be more your speed.
Off-Lease Cars and Bad Credit
If you’ve got a lower credit score, getting into a used car loan is probably going to be easier than qualifying for a lease. There are more resources available to bad credit borrowers for getting into auto loans than leases. Nearly every leased vehicle is brand new, and leasing companies are more stringent on their requirements, especially when it comes to credit scores.
However, there is a sweet middle ground between a regular used car and a brand new one: certified pre-owned (CPO) vehicles. These cars are often just coming off-lease, which means they’re typically being sold with lower mileage, only a few years old, and they come with some type of warranty.
If you want to drive a newer vehicle, and have a better chance of qualifying for something in the first place with your lower credit score, going for a CPO may be a better route for you.
Start Looking for a Dealership
Getting into an auto loan can still be hard when you have credit issues, but it's certainly not impossible. You can start your car shopping journey with us at Auto Credit Express. We have a network of dealerships, coast to coast, that are equipped to work with bad credit borrowers.
We match borrowers to dealers in their local area, and you can get the process started for free with our auto loan request form. Don’t waste time driving all over town hoping to run into a dealership with the resources to assist you – we’ll do the looking for you.