- 1 Sign and Drive Leasing
- 2 Rent to Own Cars
- 3 Bad Credit Car Lease
- 4 Our Customer Reviews
One option for people with bad credit is to lease to own a vehicle. This type of arrangement is also known as a rent to own option. They work almost exactly like a normal car lease, but are specifically organized so that they are more practical for people looking to lease who have bad credit. Essentially, a person will pay for the car each month as if he or she is renting it. However, at the end of the car lease, he or she will promise to purchase the car, with a percentage of the money paid while leasing the car going towards the purchase.
Sign and Drive Leasing
A sign and drive lease deal sounds like the deal of the century to anxious car buyers. The television commercials say that all you need to do is sign the lease and you are on your way. But, when it comes to car commercials, it is more about the fine print at the bottom of the screen. 1
The sign and drive deals are one way that manufacturers get more vehicles on the road and show revenue for those vehicles. If you are the right kind of buyer, then you can enjoy the benefits of this kind of transaction. But before you get all excited about utilizing a sign and drive arrangement for your next car, you will want to weigh the pros and cons regarding these kinds of lease agreements.
Great Car With No Down Payment
The lure of a sign and drive arrangement is that you get the chance to drive away with a great car without having to use a down payment. This part is absolutely true, but this is not a comprehensive statement. We will investigate the money side of a sign and drive a little later.
No Up-Front Lease Costs
When you use a standard lease, it can cost you thousands of dollars 2 just to close the deal. You could almost buy a good used car with the money you have to put down on a lease. When you use a sign and drive lease, you do not need to worry about most of those closing costs. You can drive off the lot with that money in your pocket and do whatever you want with it.
The sign and drive lease offers consumers the chance to enjoy the car they want at a price that they can afford. You do not need to drain your savings account to finalize a sign and drive lease, which is another one of the elements that attracts many people to these kinds of lease agreements.
Getting The Car You Want
You should walk into the dealership knowing exactly what you want and how to negotiate a car price .There are a couple of good things about sign and drive leases, and then there is the other side of the coin. When you use a sign and drive lease, you get the car that is available for the program. You may want a car with tinted windows and a better stereo system, but what you will get is a factory standard model. Most sign and drive deals do not allow customers to upgrade their vehicles at all.
“No Money Down”
When you close out the purchase of a vehicle, whether you are leasing or buying, there are always extra charges you have to pay. There are charges for registration, taxes, and the car’s title as well that are due at signing. The television commercials may insinuate that you can drive away without spending money, but that isn’t what the fine print says on the screen as the commercial ends.
In all fairness, these charges usually add up to a few hundred dollars. You still save the thousands of dollars you would normally have to put down on a lease agreement. But you need to be careful when assuming that a sign and drive lease requires no money down.
No matter how you slice it, the monthly payment for leasing a vehicle is always going to be lower than the monthly payment for buying the vehicle. But a sign and drive monthly payment will always be higher than a standard lease. It could be as much as 20 percent higher than a standard lease 3, depending on the agreement you sign.
The car manufacturers have to make up their money somehow, so they raise the sign and drive lease payments to make up for the lack of a down payment. You may want to talk to your dealer about a standard lease and see if that may not be a better deal for you.
One of the truly convenient things about car leasing is that there is a variety of terms you can choose from. Some manufacturers offer more generous terms than others, but consumers will always have the chance to choose the terms they feel most comfortable with for their vehicle payments.
With a sign and drive lease, you do not have any choice on the terms for your agreement. The dealership will tell you the terms and they usually are either 27 or 32 months. All of the other standard lease conditions apply, such as mileage limitations, but you do not get to choose from a variety of terms like you would a standard lease.
Everything we have discussed so far applies to the factory standard sign and drive lease. You can make changes to a sign and drive lease, such as requesting extra miles, but it will cost you. The dealership will have a list of features you can change, but the list will be limited. Each time you ask for a change in your sign and drive lease, the monthly cost goes up. At some point, you may be better off just going with the standard lease instead of the sign and drive option.
If an auto manufacturer is going to allow you to drive off the dealer lot with a new car without putting any money down, then you will need great credit to do it. If you ever record a sign and drive commercial, you can freeze the scene where the conditions of the lease are displayed. Somewhere on the page will be a disclaimer which states that you must qualify 4 for the sign and drive lease to get it. That means that you need great credit.
Auto manufacturers are always coming up with new ways to get people interested in buying cars. The sign and drive lease is a great idea for people who are limited on cash, but need a new vehicle. The process is simple, but there are plenty of things to look out for. If you want to lease a new vehicle, then you should definitely look into a sign and drive arrangement. But you should also leave your options open in case the sign and drive is not what you want.
Rent to Own Cars
Method 1: Purchase
You see a car you like. You visit a dealer and make a deal. You’ll need to negotiate on the sale price, work out vehicle options and secure financing through the dealer or a third-party lender. Once you’ve signed the deal, you’ve bought the car. Now you’re in debt to the loan provider, and you get to make monthly payments until you’ve paid off the loan. It’s an entirely serviceable plan, one that most people follow when they buy a car. Once the loan is paid off, the car is yours.
Method 2: Lease
You see a car you like. You visit a dealer and make a deal. You don’t have as much room to negotiate with a lease, but otherwise the process is basically the same. You get the vehicle to drive off the lot, and you’re on the hook for payments with the dealer for the length of the lease. Leasing allows you to drive a car far outside of your purchase price range, but with one significant downside: when the lease is up, you give the car back.
Method 3: Rent to Own a Car
You see a car you like. You visit a dealer and make an offer. You’re following the exact path for negotiating a lease, with one major twist. Rather than giving the vehicle back, your monthly payments go towards buying the vehicle. When your contract is up, you own the car. Rent to own scenarios are relatively rare, generally most useful for those who don’t have the credit to secure the loans necessary to buy a car outright.
Rent to Own Vehicles vs. Leasing
- Leased vehicles have to be given back at the end of the lease. Rent to own vehicles are yours when you finish the payments
- Leases requires you to pass a credit check, where a rent to own situation simply requires proof of income
- Leases do not require a down payment, but rent to own vehicles do. Point to you, leases
- Leased vehicles are generally brand new or close to it. Rent to own vehicles tend to be older used cars, as these are not tied to dealer programs and franchises
- Leases typically have built-in clauses for free repairs, within reasons. Rent to own vehicles are not covered by the same sort of warranty by default, though additional warranties can be purchased
Leasing has a few benefits, but it’s not the right path for everyone, since you don’t have a car when it’s all over. What’s the lowdown on rent to own?
Benefits of Rent to Own
- When your contract is done, you own the vehicle. You don’t have to give it back to anyone. The title is transferred from the rent to own car dealers name to your name and it’s yours to do with as you will.
- You don’t need a high credit score to secure financing. Rent to own programs are generally designed for lower-income people, those who have fallen on hard times, need a serviceable vehicle and don’t have the credit or ability to secure financing for a new car.
- Your payments will be smaller than you would be paying for a new car. This is because the overall total value of the car you’re renting will be lower, however
- Again, because of the lower value of the car you’re renting, your down payment is lower
- You have no limits on the condition of the car or the miles you drive, like you do in a lease
Drawbacks of Rent to Own
Rent to own programs have a few drawbacks of their own.
- Even though the value of the car you’re buying is low, the amount you end up paying is high. In many cases, your down payment is roughly the value of the vehicle in total. The rental payments are pure profit for the dealer.
- Depending on the rental contract, you may have more than one payment per month. Some rent to own agreements even require weekly payments. Individual payments are smaller, but they’re more frequent as a result
- You aren’t dealing with an auto loan. At first, this sounds good, as it means you don’t need to pass a credit check. Unfortunately, it also means that your payments aren’t reported to the agencies in charge of credit. Your rent to own agreement won’t help you build your credit score and you may not be able to get out of your lease or loan.
- You’ll be forced to take car of any repairs on your own. You’re also renting a used car, so repairs are more likely. Some dealers will offer repair warranties for an additional fee, but it’s precisely that; an additional fee
- The market is littered with predatory companies that seek out fine print loopholes 5 to break the agreement. A single late payment may mean you’re suddenly just renting a car, without the “to own” clause
The best option is to buy a car. See our “New Car Buying Guide” that will give you steps to follow on how to get the best price on a new car and avoid dealer scams. Then shop around, secure an auto loan and negotiate with the dealer. You won’t be able to afford the latest BMW, sure. You’ll probably be able to secure financing for a basic Honda. Securing financing is the hard part, and you might not get the best rates, but for your money, a purchase is the best value. And after you make a few payments and repair some credit mistakes you could apply to refinance the loan for lower payments.
Lease to own automobiles not a great option for typical consumers. Leases are generally best for anyone who has to do a lot of driving for the company they work for. The cost of the lease and the cost of upkeep on the vehicle are deductible as business expenses.
Rent to own car programs are valid, but they aren’t the best option. Instead, consider setting aside the monthly payment you would pay and saving it for a higher down payment on a better vehicle. You might be able to find a cheap vehicle to purchase outright, and then you don’t have to deal with any contracts. If you absolutely have no alternative, rent to own, but be certain to read the fine print and reviews for the company before you sign anything. You need to avoid predatory rent to own car companies looking to take your money and run.
Rent To Own Cars vs. a Bad Credit Car Lease
There are a few differences between a rent to own car and auto leasing options. The primary difference is that a person will not own a car at the end of a bad credit car lease contract. The vehicle is instead returned to the company. A second difference is that there is no credit check required for a rent to own agreement, while there is one for a leasing agreement. This makes rent to own agreements more feasible for those where a car lease may not. There is a down payment required for rent to own vehicles, while leasing a vehicle does not always require one. Finally, if a person is leasing a vehicle and will own it at the end, he or she will have to pay for the repairs to his or her vehicle, whereas the repairs for a vehicle acquired through car lease programs are usually free.
Rent To Own Disadvantages
There are more disadvantages to renting a car to own than to choosing a car lease. The main disadvantage is that this option be prohibitively expensive. A person will end up paying a lot more for the vehicle than it might actually be worth. Even without the interest payments, a person will end up paying way more in the long run. This is usually considered to be problematic. A second disadvantage is that the payments are much more frequent than they would be otherwise. Also, this option does not affect a person’s credit score, unlike the boost that a lease would. Finally, most rent to own agreements do not have any warranty, so if the car should break down, the person who owns the car could not have any protection. A good lease agreement is far better than this.
Bad Credit Car Lease
The most frequent question asked when a person wants to lease is what the lowest credit score can be. There is no simple answer to that question. A small number of lending companies will not even consider a customer that has a credit score that is lower than 620. It’s obvious that most auto companies would prefer that a person who is leasing a car to have excellent credit, but Valley Auto Loans understands that it’s not always possible and will work with anyone to get them the car that they need, even if he or she has a credit score of 500.
Car Lease Advantages
The main advantage that a person might find when trying to lease a car if he or she has a low credit score is that he or she will have an easier time obtaining a leasing agreement than getting an auto loan financed. A second advantage is that a person who is leasing gets a car that is brand new and has all of the safety features and technology that will make driving the car a secure and enjoyable experience. There is also a warranty that covers every vehicle leased. This means that any major repairs that need to be made to the vehicle during the time that it is leased will be paid by the company that is leasing the car, rather than the person who has signed the agreement.
A third advantage is that the vehicle is guaranteed to be reliable. This is a major confidence booster for those who rely on a vehicle to get to work and school. It will greatly reduce the amount of stress that a person experiences when he or she is attempting to commute. The final advantage is that a lease will positively affect a person’s credit score for each payment made on time. This is helpful because it will allow the credit score to be rebuilt through the lease itself, which will make applying for future loans more feasible.
Car Lease Disadvantages
Despite all of the advantages mentioned above, there are also some disadvantages that have to be dealt with when choosing a bad credit car lease. The first is that there is occasionally a down payment that is required. This is a sum of money that has to be provided upfront in order for a person to lease the vehicle. This could be impossible for some people who are leasing. A second disadvantage is that a person with bad credit will have higher interest rates than a person with good credit. This is because the person who is authorizing the lease is taking a risk when he or she takes on a person with bad credit. The higher interest payments reduce that risk. The last advantage is that the payment schedule might be more frequent than a person with a high credit score to make sure that the leasing payments are made.
Calculating Monthly Payments
The monthly payments are determined by three different factors: the length of the loan, the down payment made when the lease is signed, and the interest rate of the lease. If a loan is for a longer period of time, then the monthly payments will not be as much because the loan will be stretched out. Putting up a large sum of money for a down payment will also cause the monthly payments for a lease to be much lower. This is important because it will lower the amount of money that will need to be paid to the lender. If you have bad credit, it is very likely that you will need to put down a sum of money in the beginning, but it is up to you how much money is relinquished. Easily the most important factor on how much the monthly payment will be is the interest rate. Those with bad credit are extremely likely to have high interest rates because they represent a greater risk to the lender. This will make each monthly payment higher than it would be otherwise. To mitigate this factor, it is recommended to put down a higher down payment.
Undecided about leasing and financing and if you will qualify? It only takes a few minutes to fill out an application and have it processed at the dealership. Once everything passes through, you complete the transaction and drive away in your new car. It is a great deal for the people who qualify.
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Sources and Citations:
- http://www.gobankingrates.com/car-loans/why-sign-drive-auto-leases-never-ride/ ↩
- http://bucks.blogs.nytimes.com/2013/01/08/what-i-learned-the-hard-way-about-leasing-a-car/ ↩
- http://www.moneyunder30.com/why-you-should-never-lease-a-car ↩
- http://www.federalreserve.gov/pubs/leasing/ ↩
- http://www.gobankingrates.com/car-loans/rent-own-car-good-option-bad-credit/ ↩