You need to be extra careful when leasing a car with bad credit. There are financial institutions in the industry that take advantage of the ignorance or desperation of people who badly need financing for a car.
Here are some things you should avoid doing when leasing your car:
1) Agreeing to Pay the Vehicle’s Full Price
The lease programs offered by manufacturers often have the lowest monthly payments. But this doesn't mean there's nothing to negotiate for anymore.
Did you know that the car price of leased cars can be negotiated? When you lease a car, you pay for the difference between the car's purchase price and its residual value at the end of the term. The thing is leasing companies disclose the estimated residual value but not the starting price of the vehicle. This is why dealers can often get away with a higher car price.
If a dealer is charging you the full price of a car, you may not be able to save that much. Look at the bigger picture and try to get a lower price for the car you’re leasing. A lower car price translates into lower monthly payments.
2) Making a Down Payment
Do not make any down payment for a car lease. Leasing companies may not use that term outright but it refers to any amount they ask buyers to shell out at the beginning of the lease term.
If ever you would put some money down, limit it to only $2,000 or less. But the problem with this happens when the car is totaled or wrecked in the first few months of the term. In this case, the insurance company covers the damage and hands the payout to the leasing company. But don’t expect the money you’ve handed at the onset of the term to be refunded.
Without a down payment, though, your monthly lease payments could get higher. But that's not a problem because it you could use your extra cash for the remaining lease payments. It wouldn’t also worry you if ever something happens to your car.
3) Ending the Lease Term Too Early
Many car buyers think that they will save more money if they terminate the lease term ahead of schedule. That's actually wrong. Getting to the lease-end sooner is one of the costliest mistakes you can make in this game.
All automotive leases have early termination penalty which often costs thousands of dollars. There’s only one solution to avoid paying this much-completing the agreed lease term. So before you enter into a lease agreement, make sure you can indeed follow through.
4) Missing the Mileage
Before leasing a car, consider first the number of miles you’re likely to drive in the next few years. Lease companies put a cap on the mileage-usually a maximum of 12,000 to 15,000 miles per year. Some leasing companies can offer lower monthly payments because they have lower mileage limits. In any case, you will be charged for the excess.
If you think you’ll be driving more than the maximum mileage, buying a car might be the better way for you to go than leasing.
5) Underestimating the Wear-and-Tear Rule
Lease agreements have a clause that talks about normal and excess wear and tear of the leased vehicle. You will not be charged for scratches and damages that the lessor considers as “normal” wear and tear. But if any damage is identified as “excess”, you will have to pay the corresponding amount when you turn the vehicle in.
This means you should take care of your car. After all, it’s not yours. It is owned by the lessor unless you purchase it at the end of the lease term.
But before signing the lease agreement, clarify what the lessor considers as “normal wear.” It is your responsibility as a customer to find out what that clause means. Besides, you don’t want to be surprised by extra fees later on.
Leasing a car is not that difficult anymore for people with poor credit. You just have to meet the requirements of adequate and stable income, low debt-to-income ratio and willingness to improve your credit rating. But you have to be really careful every step of the way to avoid overspending or getting into a debt.