Whether you live in Canada or the US and have bad credit, you’ve probably had a difficult time getting an auto loan. It can be a frustrating experience when you hear that you aren’t approved. While your financial situation may have changed and you may have the money to pay for a loan, you may still be denied because of your credit score. In this article, we’ll discuss repairing your credit by leasing a vehicle.
For those with bad credit, leasing a vehicle is typically the first alternative that they think of. Close to 25% of consumers are choosing to lease their vehicles, with that number on a slow rise. While it not be easy to get a finance loan or lease with bad credit, it is doable.
What Are The Pros To Leasing A Car With Bad Credit?
There are advantages to leasing that you typically won’t see when you look at financing a vehicle.
Less Worry About Maintenance
If you’re already short on cash and a lease payment is an attractive option for you, not having to worry about regular vehicle maintenance can be a good thing. When you lease a new vehicle there is usually a 3 – 4 year basic warranty and 5 year power train warranty which will cover you if something goes wrong with the leased vehicle during your lease term.
Lower Monthly Payments
Lease payments are generally less than finance payments for vehicles. This is because you don’t pay for the full value of the vehicle with a lease, you’re only paying for the depreciated value of the vehicle with some finance fees. A lease payment can average 20% less than a finance payment for a vehicle.
Shorter Term Options
Leases are generally available for 24, 36 or 48 months, so you won’t need to worry about being locked into payments for 5 – 7 years. With a short term lease, you’ll also be able to rebuild your credit which will give you a better chance of being able to get a loan on another vehicle after your lease term is up.
What Are The Cons Of Leasing A Car With Bad Credit?
High Interest Rates
If you’ve got a low credit score, getting approved for a lease may mean a higher interest rate. A higher interest rate means that you’ll end up paying more per month for the vehicle.
Higher Up Front Costs
A lower credit score means that you may end up having to put a down payment or security deposit down on the vehicle. You may need to put down 10 – 20% in order to secure a reasonable interest rate. That could mean that you’re paying a down payment on a lease that may be similar to what you’d have to pay when financing a used vehicle.
You Don’t Own The Vehicle
Whether you have good credit or bad credit one thing will remain the same. When you lease a vehicle you don’t own it, the leasing company does. With a financed vehicle, you own it once you’ve paid it off. That means securing a loan in the future is easier because you have an asset that you can use as collateral if necessary.
So, Should You Look At Repairing Your Credit By Leasing?
While the lower monthly payment may be attractive, the higher upfront cost for a lease if you have bad credit may offset the advantages. An auto loan on a less expensive vehicle will allow you to build equity in an asset which can help get you into a different vehicle quicker.
Having said that, the finance manager at most dealerships will be able to go over additional options for you to ensure you’re put into the best scenario for you. You can have the sales person or finance manager go over the various options with you to see what will work in your best interest.
