Car Leasing and Bad Credit

lease car with bad creditLeasing is often confused with renting which leads to the conclusion that leasing a car is easy, even with bad credit. Not true.

In fact, leasing is a form of financing, similar to a loan, and requires good credit, often better credit, than buying with a loan. Because leasing usually requires no down payment and monthly payments are lower than for a loan, the lease finance company takes a bigger risk with leasing.

Even with bad credit, there are still some options for leasing.


Lease a Car With Bad Credit

If you have poor credit, leasing can be just as difficult, if not more so, than buying with a car loan.

But there may be some options. Let’s take a look.

Use a co-signer – You may be able to lease, even if you have bad credit, if you have someone, possibly a family member, who is willing to co-sign with you. By being a co-signer, the person is simply agreeing to make monthly payments if the primary signer fails to do so. A co-signer is usually not a co-lessee and has no rights to the vehicle or its use.

Make a large down payment – A down payment in leasing is called capitalized cost reduction. Although most leases don’t require a down payment for customers with good credit, making such a payment might make the difference between getting approved and not for those with poor or marginal credit. A down payment also lowers your monthly payment amount.

Use a trade-in vehicle as down payment – A trade vehicle can be used when leasing, just as when buying. The trade value given to you by a dealer is used a down payment, which might be enough to offset your credit issues. A trade vehicle (or any down payment) has a more significant effect on a lease approval than on a loan approval.

Make a large security deposit – Most leases don’t require a security deposit but making one might help overcome the problems associated with bad credit.  A security deposit is refunded at the end of a lease.

Pay a higher finance rate – If your credit is not too bad, you may be able to get approved by agreeing to a higher finance rate, called money factor in leasing.

Know your credit score – It’s important for anyone shopping for car to know their most current credit score. It’s what a dealer and finance company look at to determine if you’ll be approved or not, or what finance rate you’ll pay. It’s easy enough to get your credit score online.

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