Can I Get a Car Lease With Bad Credit?

Auto Loan Balances at an All-Time High

Your heart is set on a shiny, new set of wheels but your credit is tanked. Don’t despair; you’re not the first driver to face this dilemma. Car leases do exist for those with bad credit and may even help you beef up your score.

Here’s why: Monthly payments can be much lower for leased cars, they often fall under the manufacturer’s warranty and tend to require less money down upfront. Not missing a payment on your lease may also help you amp up your credit, making you that more attractive to lenders down the road.

If all that sounds good to you, here’s how to get started.

1. Check Your Credit

Before you apply for any auto lease, you need to know where your credit stands. That way you’ll have an idea of what type of lease you may qualify for. It may also prevent you from overpaying, lest you think your credit is worse than it actually is. (You can view two of your credit scores for free, updated each month, on Credit.com to see where you stand.)

2. Shop Around

Now that you’ve got your number, it’s time to go shopping. But first, some dating advice: Don’t fling yourself at every slick dealer who feeds you a line — take your time to find the right one. Don’t be afraid to ask questions if something sounds off. Your credit may stink, but you shouldn’t settle for an unfair agreement.

Something to keep in mind: every time a lender pulls your credit report, that’ll create a hard inquiry on your file, which could ding your credit score. But the vast majority of credit scoring models are smart enough to know you’re shopping around and will group your hard inquiries from different dealers into just one inquiry if you complete your shopping in a specific timeframe, ideally two weeks.

3. Be Realistic

If your score is less than 720, you may encounter some difficulties. This could mean a higher monthly payment, a hard time getting approved or being asked for a security deposit or percentage of the car’s cost upfront. (Some dealerships require the latter, but you can always volunteer to put more money down if you want a smaller monthly payment.)

It’s also helpful to go into the process with realistic expectations. You don’t have a perfect credit score, so you don’t want to overextend yourself and get a super expensive car lease you’re unable to actually pay. Make sure you opt for something that you really can afford like a compact or mid-sized car instead of a luxury sedan, for example. The monthly payments will likely be lower, and there’s no reason to push your budget to the limit if you’re already dealing with financial issues.

4. Explore Other Options

Still coming up short? There are options. You can ask a trusted friend or family member to co-sign your lease. If you choose to go this route, you should both be aware that if you fall behind on payments and the account becomes delinquent, that will appear on your co-signer’s credit report. Only do this if you feel you can manage the lease responsibly.

Another option would be a lease takeover, which is still subject to approval from the original lender. This allows you to take over a lease contract from someone who can no longer make the required payments, and is often easier to qualify for.

More on Auto Loans:

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Why This Could Be a Great Year to Buy a Used Car

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America’s new love affair with auto leasing offers some unexpected good news to drivers looking for used car bargains. A coming glut of end-of-lease cars will dump millions of used cars on the market in the next year or two, almost certainly lowering prices on relatively low-mileage, late-model cars with most modern amenities.

Leasing exploded in popularity during the early part of this decade, hitting an all-time record in 2014 (since repeatedly eclipsed: You can read the full story here). Two and three-year leases signed then will begin to come on the market this year, adding an estimated 800,000 extra used cars into the market, according to a report by the National Automotive Dealers Association. It conservatively estimates that used car prices will actually fall an average of 2.5% each year for the next three years.

Why Drivers Should Care

“The expanding pool of used vehicle supply, spearheaded by off-lease growth, will gradually compress used vehicle prices as time passes,” the report says. “Under this assumption, prices would be at their lowest point since 2010.”

That’s good news for all drivers, as prices for both new and used cars have risen steadily in recent years, fueled by record auto sales across the board. During the recession, drivers held on to cars longer, reducing the supply of used cars, helping push prices up 18% from 2007 to 2014, the report says.

Edmunds.com found that average used car prices set a record last year, reaching $18,600.

Pushed largely by the influx of millions of end-of-lease cars, dealers have aggressively expanded their so-called certified pre-owned sales efforts. Consumers are drawn to CPO sales because these used cars come with new-car-like warranties and benefits. CPO sales also hit a record last year, Edmunds said, and have climbed 55% in the past five years.

“The key factor driving all of the trends in used car sales today is the popularity of leasing, which is bringing younger and higher quality used cars back to the market,” Jessica Caldwell, Edmunds.com Director of Industry Analysis, said in a press release. “We’re truly in the midst of a Golden Age for CPO and near-new used cars. And with a record number of lease terminations expected in 2016, for the foreseeable future there certainly will be no shortage of supply to meet the growing demand for used cars.”

An eye-popping 54% of used vehicles sold last year were three years old or younger, Edmunds says, and the average age of used vehicles sold edged down to 4.4 years in 2015 from 4.6 years in 2014.

All those new-ish end-of-lease vehicles becoming available will eventually become a “big problem” for car dealers, Caldwell recently told AutomotiveNews.com. But a problem for dealers could be a boon for you. So what should you do?

Used-Car Shopping 101

If shopping for a new car, investigate certified, pre-owned offers, too. Dealers know they have a big pile of leases ending within the next 12-24 months, so they will be willing to bargain.

Also, in a bit of a reversal, don’t be afraid to shop for a used car during the busy months. While it’s generally easier to get a deal during winter when sales are slow, end-of-lease cars will pile up during spring and summer, when sales picked up two and three years ago. You could benefit from showing up during a busy week of lease returns.

Finally, not all used car categories will be impacted the same, so if you are looking for a deal, pick the right car.

“The supply effect on used prices will be most pronounced on subcompact cars, compact cars, compact utilities and midsize utilities—both non-luxury and luxury. Utility and truck prices will be cushioned somewhat from supply’s blow by low gas prices and stronger consumer demand, while car segments will enjoy no such buffer,” the NADA report says.

Remember, getting a good deal on an auto loan often hinges on your credit score — generally, the higher the score, the lower the interest rate. You can see where you currently stand by viewing your credit scores for free each month on Credit.com. And, if your credit is in rough shape, you can improve your score by disputing any errors on your credit report, identifying your credit score killers and creating a game plan to address them.

More on Auto Loans:

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