You've found the perfect car. So now you have to find the money to pay for it. Most people require some financing to be able to purchase a new or used car. Borrowing money with a low credit score can mean high-interest rates and high monthly payments so people consider leasing compared to financing a car loan. Did you know you can now apply for a car lease, refinance or car loans online with a low credit score?
Buying Vs Leasing Your Next Car
Should you buy or lease your next car? In this article, we will go into the pros and cons of each and help you decide the best solution for you!
Now You Can Apply For a Lease Or Car Loan At The Same Place
Auto leasing or auto financing for your new car at a car dealer can be a complicated process. Leasing can be expensive too, especially if your credit rating is low. It is best to know the benefits of auto financing vs. the advantages of leasing.
Valley Auto Loans would like to help clarify the process of auto financing vs. car leasing so you can compare your options. You can apply for a car loan or a car lease right here. We also search lenders who have rent to own options as part of our loan broker services.
Car Dealer Lease vs. Online Car Leases and Financing
Dealer leases have strict criteria for customer requirements, credit score minimums and a good bit of paperwork to fill out with a lot of legal and financial terminology. Sometimes it can get overwhelming.
Valley auto loans is an auto loan broker that helps you find the best cash out loans, lenders for new car loans or leasing agent to simplify the process of getting a car whether you finance or lease. We review your application with many of our preferred lenders to find the right car lease or auto financing you will need to close the deal. Many of our special financing loans are designed to help military personnel, students buying their first car, moms receiving child support and those recovering from bankruptcy and more.
There is no obligation to accept any offers, leasing or financing you receive and our application process is free.
Lease or Finance a New Car?
The big advantage to car leasing with bad credit is that finding a suitable lease agreement will be easier than finding a lender at a car dealership to finance your vehicle purchase. The other benefits are that leased cars are new cars with a warranty. Even though they are expensive, they will not leave you broken down with repair bills and high maintenance costs.
Is rent to own a good option?
Rent to own car leasing is a good option if you would prefer choosing a used car for a lower price. You get the benefits of leasing a car without the high cost of a new car lease.
Most lease cars or rent to own cars come with lower payments than a typical auto loan. Also, when the agreement term is up, you can use the buyout option to purchase the leased car if you like.
Does leasing a car build credit?
Used responsibly, most leases will have positive effects on a person's credit rating. Car leases can be used to increase a person's credit rating if the lease requirements of the contract are completed at the completion of the lease agreement.
Disadvantages of Leasing a Car
Many leases will require a substantial down payment if you have bad credit.
Keep in mind, unlike “rent to own cars,” none of the money you pay during the lease period will go toward the lease car buyout at the end of the lease period. If you plan on buying the leased car earthier at the end of the lease term or buy the car out early before the lease is up to avoid penalties, you will have to purchase the car as if it were a used vehicle. This means starting over to find car financing and apply for credit approval. This is a challenge for those with subprime credit.
At the beginning of the lease, the leasing company will state in your agreement what the buyout cost will be. This is calculated by projected depreciation and mileage to get the residue value of the leased vehicle. You will want to weigh the car leasing vs. buying pros and cons regarding these kinds of lease buyout agreement.
Terms of Car Loan Financing
The financing terms of an auto loan can significantly affect how much you pay for your vehicle and can have advantages over leasing programs. Traditional lenders usually offer car loans that are paid off in 3 to 6 years. More recently, some types of car loans can be extended to 8 years.
Let's review auto financing basics. When you borrow money to pay for a car,
- Your monthly payments include interest charges. An Amortization table will show how most of the interest is paid down first before the principle is paid off.
- The sum borrowed is referred to as the principle. This is the amount originally borrowed excluding interest charges. If you refinance the loan and include a sizeable down payment, you will reduce the principal and interest costs.
- You should also include tax, tag, and insurance when calculating the cost of purchasing a car.
The longer it takes to pay off the auto loan, the more interest you will pay. However, extending the length of the loan can lower the payment and allow you to afford a more expensive car.
The term of the auto loan the lender offers is often determined by factors such as credit score and the amount of the down payment you make.
To get an understanding of how your finance payments are broken down between principal and interest, look at the amortization table for the loan. You'll usually find that the initial payments of the loan are paying mostly interest and a small amount of the principle.
Rent-to-own Alternative to Leasing a New Car
There are significant advantages to leasing and financing a new car. But you may be wondering if it is possible to lease a nice used car to save some money?
The used cars rent to own option!
Technically, the answer is no. However, there is an option called “Rent-to-Own” that is available. This option allows you to pick out the used car you are interested in first. Apply for a rent to own car loan online and choose the rent to own car loan offer you like.
With a rent to own loan lease, a small portion of your monthly payments goes towards the final purchase price. So at the end of the term, you will have built up a percentage of the purchase price. The remainder of the purchase price, you will have the option to provide or roll the rest into a smaller car loan.
Advantages of rent to own financing include;
- Smaller monthly payments than a conventional car loan.
- Choosing an inexpensive late model used car.
- Having a choice to buy or turn the vehicle in.
- No leasing penalties for going over your mileage limit.
- No leasing penalties for damage or wear and tear.
- Using online car loans for financing.
One of the biggest disadvantages of renting to own is the lender requires a larger down payment than a typical car lease or bad credit auto financing. The monthly payment is usually higher than a car loan with bad credit.
Let's Look at The Various Types of Car Loans For Purchasing a Car
Plainly, a typical car loan is the easiest way to finance a new or used car. Even car lease vs. buy analysis will show this is the path most people choose. However, if your credit rating is low, you fear the high-interest rates associated with bad credit scores.
To get reasonable auto financing with bad credit, you must;
- Check your credit score and repair any errors before you apply.
- Find a lender that specializes in auto loans for people with bad credit.
- Don't use dealer financing with bad credit.
- Find a reasonably priced car and negotiate a fair selling price.
- Put up a down payment to lower the financed amount.
Keep in mind that even though the interest rate will be high, you will be improving your credit rating. Then after some time, you can refinance the car loan to reduce the monthly payments.
You can also drop some of the principal by paying a down payment on your refinance loan and this, in turn, will also lower your payments even more.
Qualifying For The Best Car Loans For Bad Credit
The easiest way to qualify for an auto loan is to plan. Check your credit before applying for a loan and if there are any mistakes, have the credit reporting agency remove them. If you have credit card charges that are close to your maximum credit line, you can call your credit card company and request that they increase your credit limit. If they raise your credit limit for that account, that will allow you to owe less than your credit limit and will automatically give you a higher credit score. This can be helpful for refinancing your car for cash out loans.
Pay down any outstanding balances on credit cards and refrain from making future purchases. Your existing debt will count against you when applying for a loan. The type of car you are financing will also influence the lender's decision and terms of car loan financing. Request a car loan online and use an auto loan broker to find the best loan deals. Stick with cars that are within your budget.
In many cases, if the vehicle payment adds to your additional living expenses to exceed more than 60 percent of your income, the lender will reject the loan application. However, there are available financial options that will help you qualify for a low-income auto loan program.
How Credit Affects an Auto Loan
Your credit score can have a significant effect on whether you qualify for an auto loan or bad credit lease as well as the interest rates. Nearly all lenders use the FICO score for credit rating. Your FICO is a number ranging between 300 and 850.
Many factors influence your credit score including late payments, collections, and bankruptcy. Lenders usually prefer FICO scores of 700 or better. This also allows you to get better interest rates. Having a lower credit score will not disqualify you from getting a loan, but to buy a car with no credit will usually cause you to pay higher interest rates for financing.
This table shows how “Bad Credit Lenders look at low credit ratings.”
- Decent | 625 – 600
- Average | 600 – 575
- Below Average | 575 – 550
- Semi-Poor | 550 – 525
- Poor | 525 – 500
- Bad | 500 – 450
- Awful | 450 – 425
- Terrible | 425 – 400
In some instances, a lender may require you to have a co-signer to make up for credit deficiencies. The co-signer is equally responsible for the loan payments.
Where to Apply for Online Car Loans
To find the very best online auto loan, the consumer should educate themselves first. There are financial options available that will help you get a reasonable car loan even if you have bad credit.
Auto loan brokers like Valley Auto Loans specializes in finding the right car loan for your budget. This application service is free to you and helps you get behind the wheel of your new car faster and at a good rate too.
You will find that second chance auto lenders offer a range of interest rates. When applying for a loan, you will need information such as your social security number, income, and expenses like mortgage and credit card debt.
While shopping around for the lowest interest rates that will save you money, try to send all of your loan applications as close together as possible.
Submitting many requests for traditional auto loan financing can lower your credit score. Experian allows a time frame of 14 days from the onset of shopping for a loan before multiple inquiries affect your credit score.
With Valley Auto Loans, your application goes to several lenders for consideration before a credit check. Thus, fewer pulls go on your credit history.
Financing With Bad Credit Through Banks and Credit Unions
Many people choose to go to a bank or credit union to finance their car. This is probably not a good choice depending on the state of the economy and your credit score. In tough economic climates, companies that fund traditional auto loans tend to be less generous as they are trying to avoid the risk.
Many times applicants with less than perfect credit are unable to qualify for a bank loan, or the interest rates are so high that the payments are painful.
However, if you have enough credit, banks and credit unions usually have lower interest rates than other lenders.
You will also find banks are easier to work with if you have a stable relationship with them or equity in your home. Banks and credit unions often have flexible terms that accommodate the borrower's needs. They may provide shorter loan payment periods if you want to pay the car off early or longer ones if you need a lower loan payment.
You should compare all of the available loan options offered by the lender as well. Any penalties for late payment or early payoff that might prevent you from refinancing the vehicle at a later date to lower your payments.
Automobile Dealership Financing
Nearly all car dealerships have some financing program available for getting an auto loan financed. If you opt for dealer financing, they will first ask you to fill out a credit application.
The dealership then submits the application to potential assignees such as banks or finance companies. These lenders check the contract to decide if they are willing to purchase it at wholesale cost. You do not deal with the financiers directly.
The benefit of dealer financing is that they often offer rebates,(new cars) special pricing or financing plans such as reduced APRs or cash back on certain models.
Always make sure you understand the terms and conditions of dealer rebates and financing. Ask questions about anything that isn't clear to you.
The APR can be negotiated as well as the price.
It is a good idea to have an approved loan before visiting the dealership. This gives you the upper hand in negotiations and making the most informed choice possible in the process. It also prevents you from having a broken heart once you find the car of your dreams should the dealer be unable to provide any other source of financing.
Online Service Lenders/Brokers
Online service lenders and brokers such as Valley Auto Loans can help you find the best auto loan rates available. Rather than submitting individual applications to every prospective lender, you can just enter your information on the application for a car loan, lease or rent to own form online.
This can save you a considerable amount of time. If your vehicle has been totaled in an accident and you have bad credit, it may be difficult for you to replace the car with a conventional loan. Valley Auto Loans also allows you to find available credit sources more quickly.
Pre-approval for online auto loans usually takes a matter of minutes, and you can apply right from home. You can typically find attractive rates with online service lenders since the market is somewhat competitive.
Buying vs. Leasing a Car Through a BHPH Dealer
Buy here, pay here car lots allow you to make arrangements for payment directly to the car dealer. This is referred to as in-house financing.
They usually offer to finance with small down payments. Car payments are typically small and made weekly. Most tote-the-note dealerships have much less inventory than a traditional dealership.
The biggest advantage of choosing a car at a buy here, pay here car lot is that they provide financing regardless of your credit score or past financial history. They allow the credit challenged an opportunity for funding when they have been turned down for a loan by traditional lenders. It also provides the opportunity to improve your credit rating.
On the downside, interest rates are extremely high to compensate for the uncertainty of risky borrowers.
State and Federal Lending Laws
You should be aware of state and federal laws that protect your rights as a borrower.
The Equal Credit Opportunity Act forbids discrimination in credit-related matters based on gender, race, marital status, religion, nationality or age.
The Fair Credit Reporting Act allows you the right to obtain one free credit report each year from each of the three credit reporting bureaus.
The Truth in Lending Act requires that creditors show all essential terms of a credit contract before you sign the agreement. Each state has individual laws regarding lending practices as well.