If You Have Bad Credit, Should You Lease or Buy a Car?

If You Have Bad Credit, Should You Lease or Buy a Car?
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Mike Randall
By: Mike Randall
Posted: August 1, 2013
Experts share their tips and advice daily on BadCredit.org, helping subprime consumers navigate the world of personal finance.

The question of whether to lease or buy a car is one almost every car-driving adult has faced at one time or another. And it’s true there are advantages and disadvantages to both.

But what if you have bad credit? Is there one way of getting into that new car that’s better for you?

The worse your credit is, the more you will pay for a car.

This is true whether you finance the purchase of a car or decide to lease it. In fact, the only way you won’t end up paying a higher-interest premium for the car is if you pay cash and buy it outright.

So now that we’ve determined a penalty will be assessed for your bad credit, the question becomes…

Just how bad is your credit?

Most leasing agencies will require at least fair or even good credit before they will allow you to lease a car.

This is because when you lease, the car still belongs to them and they want to be certain you’re a responsible enough person to take care of their property.  So if your credit is really bad, you may not be able to lease at all.

“Whichever route you choose, making payments

on time is the way to rebuild bad credit.”

Let’s say your credit is good enough.

The upfront difference between the two is leasing usually comes with a lower monthly payment.

However, you may still be required to put a hefty amount down to secure the lease. This will be especially true the worse your credit is.

A lease also has the disadvantage of not building any equity from your monthly payments.

One final factor when considering a lease is you will be forced to make a major financial decision when the lease period is up. Do you give back the car and start all over again, or do you buy out your lease and somehow find a way to pay for it?

Choosing to buy a car using a loan.

There are similar considerations if your credit is bad.

First, you will likely be paying between 5 and 7 percent more in interest charges for your loan than someone who has excellent credit. That’s the bad news.

The good news is if you can afford the payments, you will at least be building some equity in the vehicle.

Usually at around the middle of the loan term, you’ll reach the “break even” point on your car. After that, it will be worth more than you owe.

By the time you’ve made your final payment, you may have a few thousand dollars of equity.

Whichever route you choose – buying or leasing – you will need to be sure of one thing: Making your payments on time every month is the way to begin rebuilding your bad credit.

Be sure to never miss a payment and you can soon watch your credit score rise. By the time you’re ready for your next lease or purchase, you’ll see the advantage of having good credit…namely, it’s a lot less expensive!

Photo source: creditsesame.com.