Should You Buy Or Lease A Car When You Have Bad Credit?

Buying or leasing a car can be an indispensable part of providing for your family. A dependable car is necessary to get to work, take your kids to school or drive your family to places they need to go. A poor credit score changes the way you qualify for financing a new car. That in turn will affect the total price you pay for that car over the payment term. This article explores your financing options when you need to buy a new car with a low credit score. If you must choose between financing or leasing your vehicle, There are many factors to consider first.

Carefully check each item to be sure it would benefit your financial status before shopping for a car. Many people are limited to the quality or price of the car they buy by their credit score and the cost of the car loan. With a little time spent reading through our resources, like our “New car buyers guide” or our “Used car buyers guide,” you will save a significant amount of money up front. That means you will have a more affordable car loan even with poor credit, and you will be able to select a higher-priced car than you would have originally.

1: How Low Is Your Credit Score?

You will need to start with finding out your credit score with any car buying that you will have to finance. Many people begin by going to a dealer, picking a car and then letting the car dealer find them financing that will get then that car. This method has put many people at risk of high monthly payments and long financing terms. If you have experienced this before, it may have been what led you down the road to a bad credit rating. Everyone is entitled to a free credit report once a year from the reporting agencies. Your dated report will show you where your credit problems come from. Now is the time to have them correct any errors or discrepancies you have with the data on the report.

2: Get Your Financing Or Lease Amount Pre-Qualified First.

There are dealerships all over America that market to customers with poor credit. You will see signs like “Buy-Here-Pay-Here,” “Tote the Note,” “No Credit Check” or “Dealer financing available.” These have inciting marketing tactics that led you to shop there, but many are set up to prey on unsuspecting buyers with poor credit scores. Most of these dealers will offer you low-quality cars and charge a lot more than they are worth.

If you desire to purchase or lease a vehicle from one of these dealers, you will need to do a bit of shopping around. Then you will see just how differently they will treat your low credit score and how high your payments can be. Many of these dealers will not report your payments to a credit agency, and this will not help you get a better credit rating over time.

The best way to get financing is to pre-qualify with a lender before you go shopping. Then you have the choice to buy on any lot you like and know exactly how much money you have to bargain with. This can be done on-line, and you can take as much time as you need to fill out the application without the pressure of a salesperson watching you.

Some subprime loans come with a higher APR because of a low credit score. If you get a subprime loan to establish good credit, then you can refinance your loan later for a better APR as soon as your qualify.

3: Buying A Car Provides You With More Value

You will spend a bit more money when you purchase a vehicle outright, but a vehicle you own is an investment that you can get money out of later. Even if you have to pay a higher interest fee to purchase a car with bad credit, you will be repairing your damaged credit and investing for the future.

After you have paid on the loan for several months and your credit score grows, you can apply for a refinance to get lower payments. A lease will not let you change your payments after you sign the term agreement.

4: Leasing A Car Is Cheaper Up Front

Renting a car will help you spend less money to get the vehicle, but you must be prepared to make a down payment on the lease. A rental agreement has a limited amount of time that you have the car, and in most cases will make lower payments than buying. The only obstacle to a new car may be the down payment on the car. There are ways to get a down payment over time and build a solid financial payment plan. Alternatively, search for dealerships that offer low down payments, and you may find a dealership that allows you to lease a car with no down payment but only if you have sufficient credit.

A car lease lowers your monthly payments, but you must return the vehicle when the lease is over. You could hop from car to car easily, and the leases will help you save money on your monthly budget but gives you no equity and won’t help build credit. Families that need to save money will benefit from a car lease, but many lease programs require excellent credit. Search for programs that accept customers with poor credit, and ensure that you are not paying too much for your down payment. You may find the same car at different dealerships with different down payment requirements.

5: Is Leasing More Difficult?

Leasing a vehicle is harder than purchasing in most cases. You will find the purchase process easier if you just finance the automobile. Many sales programs accept low credit scores, and you will find greater comfort in a simple sale using your recent credit score. Leases do not build your credit like a purchase, and leases do not allow you to keep your car after the lease period ends.

6: Avoid Dealer Financing

Buying a vehicle is much simpler when you get pre-approved for the loan outside the dealership. Loan officers at the dealership only have so much leeway when giving you a loan. The way they get you approved is to charge you more and spread out your payments over a longer period. A bad credit auto lender or local bank can offer you a loan program that meets your needs and is structured around your poor credit score.

You can drive off the lot with your new car in a matter of moments, and you will enjoy the shopping process without worrying about your financial position. People who shop for cars with outside financing are given excellent customer service. You can get through the purchase process without any need to visit a loan officer at the dealership or to tell the dealer of your financial history.

7: Should You Finance A Down Payment?

Down payments for car leases can be funded at a local bank, but we never recommend financing a down payment unless you do not have the money for a down payment. You would be able to get an interest rate lower than the one for the car loan if you were to purchase it.

Financing the down payment on a new car will help you get behind the wheel of the car your family faster, and it is an investment. However, be careful. Extending the payments to get a car with no down payment could set you up owing more for the car than it is worth.

8: Plan Ahead

You must plan ahead for your vehicle purchase to ensure that you have enough information to make the purchase. We offer a “New car buyers guide” to help you avoid dealer tricks that can cost you a significant amount of money. We also have a “Used car buyers guide” if you are in the market for a used car. There are also tips that will help you know how much you can afford to spend on a car and how to pick the automobile that is right for you. We can help you get the most out of your trade in.

Your poor credit may have caused you problems in the past, but with a little help, you can break the circle of bad credit history and start the road to recovery. Your poor credit rating can be salvaged with a single car purchase, and your poor credit will begin to improve while you pay off your new car. If you have never had credit before then, this would be a good time to start.

Leasing is cheap, but you will have a hard time finding a dealership that will help you with an affordable lease agreement. A car purchase will supply the car you need and give you better credit history.