When it comes to life’s bigger expenses, whether it’s buying a house or getting a car, borrowing is often the only way to get started. Few of us have the amount of savings or cash on hand to pay outright. With roughly a third of new vehicles in America on lease, the idea of not owning the car you drive is well-established. If you’re stuck with a bad credit score, however, even leasing can seem out of reach. Here’s how to work with what you’ve got to point yourself in the direction of where you want to be.
How Does Car Leasing Work?
When you lease a car, the dealership transfers ownership to a leasing company, who then leases it back to you in exchange for a monthly payment. Unlike financing, at no point does the car belong to you. At the end of the lease period (typically 36 months) you return the vehicle and payments end. Your upfront and monthly payments will incorporate several costs:
- Down payment: typically 20% of the car value, which you can pay upfront. If you don’t have it, you can sometimes fold it into your repayment schedule.
- A one-off, non-negotiable acquisition fee to set up the lease.
- Security deposit: usually equivalent to one month’s payment.
- Amortization and interest charges: subtract the value of the car at the end of the lease from the starting value, spread over the lease period, plus interest.
It might seem complicated, but one part is simple. The lower your credit score, the higher the interest you will have to pay on the lease.
So What Are the Advantages of Leasing?
When you’re buying a car on finance, the value of your asset drops every day as the vehicle ages. With the interest, you’ll always be paying more than the sticker price. If you decide to sell the vehicle, the resale value might be less than the outstanding loan amount, leaving you short. Leasing is different. Think of it as an extended (and much cheaper) car rental. Your monthly repayments will be lower than with financing, you’ll usually have a full warranty, and you don’t have to find a buyer at the end of the term. It’s a great option if you want to drive a new car every few years. Providing, that is, your credit score meets the leasing criteria.
What Is Considered Bad Credit?
The fact that the average credit score for used car purchases is 657 might seem encouraging. After all, that’s not an insurmountable obstacle. In practice, most leasing companies reserve the juiciest deals for those with scores of 700 and above. If your score is south of 620, it might still be possible to get a lease, but your pool of available vehicles will be significantly reduced. To give yourself the upper hand in borrowing, you’ll have to be flexible and creative.
Be Prepared to Look at the Options
Focus your strategy on the search and negotiation phases. That means being prepared to look beyond your first-choice car, limiting your mileage to less than the standard 15,000 miles a year, and trading in an older car where possible. Arm yourself with the right information by checking the Consumer Report for the value of any make or model that catches your eye. Always negotiate the price with a dealer first before talking about leasing options. If they’re balking at your pitch, see if you can make an upfront payment to reduce the capitalization cost, or get someone with good credit to co-sign your lease.
How to Achieve Your Best Credit Score
If you understand the key factors that affect your credit score you are better poised to negotiate from a position of strength. Ultimately, your aim is to reduce your debt-to-income ratio so the lender can see that you can afford to take on the cost of a lease within the bounds of your monthly income. One of the curious quirks of securing a car lease with bad credit, if you can, is that it will actually help you in your goal of achieving your best credit score — providing you make all your payments on time.
Looking for your next car but struggling with bad credit? ScoreMaster can help you quickly add more points to your credit score, putting the keys in your hands. Contact us today.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.