Renting a car is possible if you have a bad credit history, but this is also not an easy process. If you are unsure of where to start on your journey to your rental car, let us show you the way.
4 Fundamentals of leasing
Firstly, leasing is a completely different process than financing a car loan. Sure, there are some similarities, like how you pick a car, negotiate a contract and need full coverage auto insurance, but that’s where it ends.
Renting a car means you will never own a car unless you buy it in the end. The rented cars are usually only new, which means they can start at a higher price than the cars that you could finance with a loan. But since you never actually own a car, you only pay for the time you have.
There are four basic leasing terms you need to know:
- Capitalized cost – This is also called the maximum value and corresponds to the purchase price of the car on the loan. The rental price is the depreciation cost plus taxes and fees. This is a pre-calculated price that you must pay over the rental period, which is usually 24 to 36 months.
- Decrease in marginal cost – This is similar to a down payment on a loan, but is not required for a lease. If you use the marginal cost reduction, you save money on monthly bills, but not reduce the total rental price. Everything you do when you use cost limitation makes an advance payment of the lease.
- Residual value – This is the value of the car at the time of rental. The residual value is set at the beginning of the lease. If your lease is calculated correctly and there have been no major changes to increase or decrease the value of the car, the residual value should be equal to the equity.
- Monetary factor – This is comparable to the interest rate on the loan. It is expressed as a decimal number, such as 0.0024. To find out how much this will be in annual income, multiply the decimal by 2400. In this case, rent with a monetary factor of 0.0024 is equivalent to an interest rate of 5.76%. The money factor is also sometimes called the rent factor or rent.
Now that you know the basic lease terminology, let’s take a look at why bad credit leases can be tricky.
The difficulties of renting a car with a bad credit history
Although at first glance, renting a car may seem like a better deal than a car loan, this is not always the case. It is true that rented cars usually have a lower monthly payment than their car loan counterparts. Whether you always want to drive a new car or want the latest bells and whistles in your car, leasing can be attractive as well.
However, since these are new vehicles, the starting price is often higher than other vehicles such as pre-owned or certified pre-owned vehicles. If you rent a car for 36 months which is more expensive than the one you can buy on credit in 60 months, you probably won’t save too much money by having a lower monthly payment.
In addition, since lease approvals are usually based on your credit rating, a consumer with credit difficulties may not find a landlord willing to work with them. When you are struggling with credit problems, you can have trouble getting a loan for many things. Affordable credit as well as general financial stability are important factors in leasing.
And when the lease expires, you will either have to start the process over and rent it out again, or purchase the vehicle at a pre-calculated residual value. Plus, there are additional costs associated with leasing that can tip the scales for bad credit borrowers.
This is because the rented cars do not belong to you, so they are subject to strict rules while you are using them.
Additional leasing costs
Any condition that does not meet the rental provider’s standards when returning the car must be paid out of your pocket unless you plan on buying the car. Either way, that’s more money that you might not be willing to spend. This may include excess mileage, depreciation and cleaning charges.
All rental cars have mileage restrictions, and if you drive more than the allotted amount, you usually pay about 25 cents or more for the extra mile. You can purchase additional miles at a lower price in advance, but you will not return them unless you redeem them.
Your car must also be kept in as good a condition as possible – any wear and tear on the car that the lessor deems excessive can result in a fine. You should also keep your car clean inside and cannot make any changes to the original hardware while you have it.
If something happens to your vehicle that is not covered by the warranty, you may also be responsible for repair bills for any problems that you couldn’t or didn’t want to fix. Rented cars also usually have a higher deductible for auto insurance than cars with a loan, which can significantly increase the cost of your insurance.
Finally, there are many leasing-related fees that you may not have to worry about with a car loan, such as the initial fee, security deposit, and early termination fees. In fact, it may not be possible to terminate the lease early without paying the entire rental price.
Car loans and bad credit
While a car loan may not be what you set out to find, it is much easier to get one with bad credit. There are lenders who work specifically with consumers who are short on credit, they are called subprime lenders. They can be found through dedicated finance dealers and they use more than just your credit rating to get approval for funding.
With a car loan through subprime lender, you have a chance to get the car you want, and you won’t be able to return to return the car after the end of the semester – you are the owner of this car! Other benefits include keeping the vehicle in whatever state you choose. These include the ability to drive as many miles as you want, the ability to customize your vehicle, and possibly more savings on auto insurance versus leasing.
Perhaps one of the biggest advantages of car loans over leasing is that you are more likely to get a loan. Subprime loans can help you get a loan with every timely payment, and if you have enough credit improvement by the end, you can set yourself up to rent out next time.
Ready to get started?
If you are dealing with bad credit and need a car, getting auto loans is a great way to improve your credit and get the car you are looking for. However, finding a dedicated financial dealer that has the lenders you need can be difficult, especially if you don’t know where to start. Not all dealerships have the resources to help people who have damaged their credit history.
IN Car loan Express, we know where to find the dealers you are looking for and have been providing borrowers with lending opportunities for over 20 years. Why drive around town looking for the right place when you can start right here? Just fill out our quick car loan application formand we’ll find a local dealership for you. The process is free and never requires any commitment, so get started now!