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Trying to Lease a Car With Bad Credit? Here’s What You Need to Know

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Leasing a car isn’t impossible when you have bad credit, but it’s not the easiest process either. If you’re not sure where to start your journey toward a lease vehicle, let us point the way.

4 Leasing Basics

Firstly, leasing is a whole different process from financing an auto loan. Sure, there are some similarities, such as how you choose your car, negotiating your contract, and needing full coverage auto insurance, but that’s about where they end.

Leasing a vehicle means that you never actually own the car unless you purchase it at the end. Leased vehicles are typically only new, which means that they may start at a higher price than cars you could finance with a loan. But, since you never actually own the vehicle, you’re only paying for the time you have it.

Here are four basic leasing terms you need to know:

  1. Capitalized cost – Also called the cap cost, this equates to the purchase price of a car in a loan. It’s the cost of the depreciation plus taxes and fees that make up the cost of your lease. This is a precalculated price which you work to pay over your lease term, which is typically 24 to 36 months.
  2. Cap cost reduction – This is similar to a down payment in a loan, however, it’s not a requirement for leasing. If you use a cap cost reduction, you save money on your monthly payment, but it doesn’t decrease the overall cost of the lease. All you’re doing when you use a cap cost reduction is prepaying the lease.
  3. Residual value – This is the value of the vehicle at lease turn-in time. Residual value is set at the start of the lease. If your lease is calculated correctly, and there haven’t been any major changes to increase or reduce the car’s value, the residual value should be equal to the equity.
  4. Money factor – This is comparable to the interest rate of a loan. It’s expressed as a decimal number, 0.0024 for example. To see what this would equal as an APR, multiple the decimal by 2,400. In this case a lease with a money factor of 0.0024 is equivalent to having a 5.76% interest rate. The money factor is also sometimes referred to as the lease factor or lease fee.

Now that you know the basic lease terminology, let’s look at why bad credit leasing can be difficult.

Difficulties of Leasing a Car With Bad Credit

Trying to Lease a Car With Bad Credit? Here's What You Need to KnowEven though leasing a car may seem like a better deal than an auto loan on the surface, this isn’t always the case. It’s true that leased vehicles typically carry a lower monthly payment than their car loan counterparts. If you always want to drive a new vehicle, or need to have the latest bells and whistles in your car, leasing could also be appealing.

However, because they’re new vehicles, the starting price is often higher than it would be on other cars, such as used or certified pre-owned vehicles. If you’re leasing a car for 36 months which is more expensive than one you could buy with a loan in 60 months, you’re probably not saving too much cash by having a lower monthly payment.

Additionally, since a lease approval is typically based on your credit score, a credit-challenged consumer may not be able to find a lessor willing to work with them. When you’re struggling with credit issues, you may have trouble getting credit for many things. Available credit, as well as overall financial stability, are big factors in leasing.

And, when your lease is up, you either have to start the process over and lease again or purchase the vehicle for its precalculated residual value. Then, there are the extra costs associated with leasing that may tip the scales out of favor with bad credit borrowers.

This is because lease cars aren’t yours to keep, so they have strict rules imposed on them while you’re using them.

The Extra Costs of Leasing

Any condition that doesn’t meet the lessor’s standards when you return the vehicle has to be paid for out of your pocket unless you plan to buy the car. Either way, it’s more money that you may not be prepared to spend. These could include over mileage charges, wear and tear fees, and cleaning costs.

All leased vehicles have mileage limits, and if you drive more than your allotted miles you usually pay around 25 cents or more per extra mile. You can purchase extra miles at a lower cost up front, but there’s no refund if you don’t end up using them.

Your car also has to be kept in as good of condition as possible – any wear and tear to the vehicle that’s considered excessive by the lessor could incur a charge. You also have to keep the car clean inside, and can’t make any modifications to its original equipment while you have it.

If something happens to the vehicle that isn’t covered under warranty, you may also be responsible for the repair bills of any issues that you were unable, or unwilling, to fix. Leased cars also generally carry a higher auto insurance deductible than vehicles with a loan, which could increase the cost of your insurance significantly.

Lastly, there are many fees associated with leasing that you may not have to worry about in a car loan, such as an inception fee, security deposit, and early termination fees. In fact, it may not be possible to get out of a lease early without paying the entire cost of the lease.

Auto Loans and Bad Credit

Though an auto loan may not be what you set out to find, they can be much easier to achieve with poor credit. There are lenders that work specifically with credit-challenged consumers, called subprime lenders. They’re found through special finance dealerships and use more than just your credit score to get you approved for financing.

With a car loan through a subprime lender, you have the chance to get the vehicle you need, and there’s no going back to turn in the car once the term is over – you own it! Other advantages include keeping the vehicle in whatever condition you choose. These include being able to put as many miles on it as you want, the ability to customize your car, and possibly big savings on auto insurance over leasing.

Perhaps one of the biggest advantages to a car loan over a lease is that you have a better chance at getting a loan. Subprime loans can help you build credit with each on-time payment, and if you have enough of a credit score boost by the end, you can set yourself up to be in a position to lease the next time around.

Ready to Get Started?

If you’re dealing with bad credit and need a vehicle, getting an auto loan is a great way to improve your credit and get the car you’re searching for. Looking for the special finance dealer that has the lenders you need can be hard, though, especially if you aren’t sure where to start. Not all dealerships have the resources to assist people who have damaged credit.

At Auto Credit Express, we know where to find the dealers you’re looking for and have been connecting borrowers to lending opportunities for over 20 years. Why drive around town looking for the right place, when you could start right here? Simply fill out our quick auto loan request form, and we’ll work to match you to a local dealership. The process is free and there’s never any obligation, so get started now!

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Bad Credit

Is The No Credit Check Loan The Best Option For You? | Branded Voices

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If you need extra cash and have considered applying for a loan even with a bad credit score, you might have already heard about the no credit check loan.

Image by Bermix Studio 

Many people opt for a no credit check loan as their last resort. Like any other loan options, a no credit check loan has its pros and cons. Knowing if this is the best option for you allows you to go consider both its advantages and disadvantages. 

But is it your best option? Is there another way to acquire cash without looking into your credit record?

The Advantages

Here are the other advantages of a no-credit loan:

No Credit Checks

You are considering this loan option because the lender will not bother to check your credit report. It doesn’t matter whether you have a good or a bad credit score as long as you are eligible and can comply with their requirements. 

This benefit is one reason why this loan option attracts many borrowers, especially those who don’t have an impressive credit score and those who are still building their credit records.

Other loan options will require you to provide a good reason why you are acquiring the loan. 

For example, lenders will ask you how you will use the loaned money aside from knowing your capability to repay the money you owe.  But with the no credit check loan, lenders will ask you this kind of question during your application. 

The Disadvantages 

Just like any other options available out there for you, a no credit check loan also has its disadvantages. These things may be huge factors for some consumers, while to others, they’re just minor inconveniences you need to deal with. 

Higher Interest Rates

One of the most common and obvious disadvantages of a no credit check loan is its higher interest rate. Since the lenders will not bother looking at your credit history and rating, they will impose a higher interest rate on your loan. 

The higher interest rates imposed are due to risks they take in lending you their money without even knowing if you can pay it back. This is a common rule for all lenders who offer a no credit check loan. 

Required a Minimum Loan Amount 

If you only need a small amount, a no credit check loan may not be the best option for you. Lenders require a minimum loan amount when you apply for a no credit check loan. Most personal loans with no credit check will require you to loan a higher amount than other loan options such as payday loans and single-payment loans. 

May Require A Collateral

Lenders may require you to have collateral as an assurance for the money you are borrowing from them. It is also to secure their part if ever you cannot pay back the cash you borrowed from them. If you default on your loan, the lender will forfeit the collateral. Collateral can be in the form of any valuable assets such as a house, vehicles, and jewelry.

Quick Process 

Another positive thing when acquiring a personal loan with no credit check is the speedy process. You can get the money in just a few minutes or hours as long as you comply with all of their requirements and are eligible for the loan.

Reminders Before Applying for This Loan 

There are things that you should watch out for when opting for this loan type, especially if you do it online, such as:

  • Watch Out For Fake Lenders

This is the risk associated with a no credit check loan. Some criminals use this to lure their victims for phishing and identity theft. Make sure that you choose a legitimate lender and never give out personal information prematurely. It is best to ask someone you trust for a recommendation or for help with securing a loan from a trusted lender.

  • Prepare The Requirements Ahead Of Time 

It is best to prepare all the requirements before applying for the loan to help you acquire the money quickly. Check your chosen lender’s website or print ads for a list of requirements they will need. 

Even though this loan option does not require a credit check, it does not mean you are guaranteed approval. If the lender finds out that you are not eligible for a loan, your application will be denied. 

Takeaway

Asking yourself if a specific loan option is good for you is one of the proper ways to assess if you should apply for it or not. This practice should be observed in applying for no credit check loans and other loan types available. Remember, not all loans are suitable for you. One loan may work better for others but may not work the same for you. Hence, be prudent and choose the loan option that suits best with your financial needs.

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Learn to avoid these credit card habits before you regret making costly mistakes

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Picture used for illustrative purposes only. Many still decide to confront bad credit card habits only after they are thousands of dirhams in debt.
Image Credit: Reuters

Dubai: Many still decide to confront bad credit card habits only after they are thousands of dirhams in debt. Here we discuss some lessons many regretted not learning before making mistakes that proved costly.

Although credit cards offer convenience, security, and rewards, overspending with a credit card and the interest and fees can bury you financially. So it’s important to know whether you possess such habits in the first place.

Four questions to ask yourself first

If you don’t know whether you have a bad credit card habit here are four questions to ask yourself to find out. If the answer to any of the below is yes, you are inching towards a credit card debtpile.

1. Do you pay only interest fees or minimum payments when you send in your credit card payment?

2. Have you ever paid your credit card late because you didn’t have the money for the payment?

3. Do you use your credit card when you don’t have enough cash?

4. When your issuer raises your credit limit, do you spend more because you can?

Bad credit card habits

While common mistakes include habitually paying your credit card late and taking out costly cash advances on your credit card, here are some uncommon-yet-dire mistakes that may slip under any user’s radar.

Habit #1: Missing out unauthorised or fraudulent charges

Keep in mind that one of the main benefits to reading your credit card statement is, it is one of the best ways to catch unauthorised charges and billing errors.

Don’t check your credit card statement for your balance and payment information, review the entire statement to verify your account activity.

By routinely checking your online or physical statement, you can also find out well before hand if your credit limit was lowered since you last checked – as it can change because of your credit habits or your credit history.

Habit #2: Paying only the minimum can cost you dearly

It is evidently easier to make the minimum payment and this is a habit credit card companies profit from as well.

Although paying just the minimum is more convenient than to figure how much extra you can pay towards your outstanding credit card bill, keep in mind that when you’re making only the minimum payment, you’re not making much progress toward paying off your credit card bill.

Moreover, unless you have a very low balance or a zero per cent interest promotion, you’re probably paying much more in finance charges than you have to.

Habit #3: Using your credit card more than your debit card

While it’s recommended you use your credit card to amass cashback rewards or points and also pay off your credit card balance every month, you shouldn’t opt to use your credit card over your debit card, if those aren’t the reasons why you would go about using them.

Your debit card is your direct access to the funds you should use for everyday purchases, like groceries, gas, clothing, and other expenses. If you use your credit card, it should be a decision with a plan for paying off what you’re charging on the card.

Habit #4: If you are transferring balances just to avoid payments

Although promotions like balance transfers are a widely recommended strategy to pay off a high-interest rate balance on your credit card, matter experts reveal that if you’re in the habit of pursuing such promotions to avoid paying payments on your credit card, this leads to amassing long-term debts.

Financial planners reiterate that many don’t realise that balance transfers typically have fees that will increase your overall balance if you’re never making payments toward the transfer. Moreover, if you’re making purchases on the card with such a promotion, the problem gets bigger.

Expert tips to take control of these credit card habits

Lesson #1: Pay your credit card in full each month

The best way to keep your credit utilisation ratio low and avoid costly interest charges is to pay your credit card balance in full each month – which also means you also don’t incur any large due.

It’s effective to control spending by not spending more than you can comfortably pay down each month, as this helps you reduce the likelihood of developing long-running credit card debt.

If you want to take in one step further, setting a monthly spending limit that’s well within your budget increases the chances that you’ll actually be able to zero out your monthly balance and avoid interest charges.

Lesson #2: Keep your credit utilisation ratio low

What it means by ‘credit utilisation ratio’ is essentially the link between your credit card balances and your aggregate spending limit. For example, a Dh2,000 balance on a credit card with a Dh5,000 credit limit equates to a 40 per cent credit utilisation ratio.

As a rule of thumb, your credit utilisation ratio shouldn’t exceed 40 per cent, and keep in mind that high ratios may adversely impact your credit score.

Financial advisors recommend aiming for a 30 per cent credit utilisation ratio, as that gives you some leeway to cover urgent one-off expenses, which can come unexpectedly as a result of maybe losing your job during the ongoing pandemic.

Lesson #3: Setting up customised spending alerts

If controlling your credit card spending is burdening you, it has been widely advised to set up customised spending alerts.

This will let you know when you’ve made an abnormally large payment or exceed a certain balance threshold and you also can pair these data alerts with security alerts to help flag any sham spending patterns.

Lesson #4: Using credit card rewards and points to your advantage

If you have a rewards credit card, you can use it to your advantage. If you have a pure cash back credit card, use any cash rewards you receive to put toward your account balance or directly deposit it into your savings account.

Alternatively, if you have a rewards points credit card, you can use your rewards to buy discounted gift cards to the stores you know, which will help save on future purchases without having to use your credit card.

If not, you could always redeem your reward points for cash redemption to put into savings or towards your account. However, ensure you know when your rewards expire to get the most out of them financially.

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When Can I Get an Auto Loan After a Repo?

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There’s nothing saying you can’t apply for an auto loan immediately after a repo, but the tough part is actually being able to qualify for the loan. Since many auto lenders don’t approve borrowers with a repo that’s less than a year old, you may have to consider in-house financing.

Repossessions and Your Next Car Loan

Unfortunately, most traditional auto lenders don’t work with borrowers that have a recent repo on their credit reports. When we say traditional, we’re referring to lending institutions such as banks, credit unions, online lenders, and the captive lenders of some automakers. These lenders often require a good credit score and clean credit reports.

Where does that leave you? Well, likely in-house financing is the next logical step if you need a car loan after a repossession.

More on In-House Financing

Buy here pay here (BHPH) dealerships use in-house financing. This way of auto financing involves working with the dealer who’s also your lender. There’s no need to find a third-party lender or preapproval – the dealer takes care of all that. This setup can be convenient, and often, borrowers are able to walk away with a vehicle the same day they first set foot on the lot.

Since these dealers may not check your credit reports to determine your eligibility for auto financing, your recent repossession generally isn’t an issue. If you can meet income requirements, prove you have stable work, secure auto insurance, and prove your identity, you might get into a vehicle after a repo with in-house financing.

Here are a few more details on in-house financing:

  • Used cars only – BHPH dealers only offer used vehicles. However, used cars are a good option for bad credit borrowers. They’re almost always less expensive than a brand-new car, and affordable is a good price when you need to get back on your feet after a repo.
  • Anticipate a higher interest rate – Without a credit check, lenders are taking a risk approving a car loan without knowing much about your credit history. To make up for this, they tend to assign higher interest rates. A high interest rate may be considered a good trade-off for an auto loan with bad credit in many cases, especially if you heavily rely on a vehicle to get by.
  • Credit repair may not be an option – If you get an auto loan with a lender that doesn’t check your credit, it’s a possibility that your on-time payments aren’t going to be reported to the credit bureaus. If you want to repair your credit with a car loan, ask the lender about their credit reporting practices before you sign on the dotted line.
  • Down payments are required – Few things are certain in the auto lending world, but one thing you can count on is needing a down payment if your credit is less than perfect. BHPH dealers often require a down payment of up to 20% of the vehicle’s selling price.
  • Prepare your documents – While a BHPH dealer may not check your credit, they’re likely to ask about your income and possibly your work history. You need proof of income to qualify for a car loan, no matter what lender you work with, so prepare at least a month of computer-generated check stubs. If you don’t have W-2 income, have copies of your last two to three years of tax returns.

Looking Forward After a Repo

When Can I Get a Car After a Repo?After one year, your auto loan options open up a little bit more and you’re more likely to qualify for a subprime car loan. Subprime lenders are equipped to assist bad credit borrowers. These lenders offer you a chance for credit repair because they report their loans and work with poor credit borrowers.

If you need a vehicle quickly, a BHPH dealership could be your first step in getting back on the road. Once some time has passed, and your repossession loses some impact on your credit reports, you can try for an auto loan that has the potential to repair your credit.

Here at Auto Credit Express, we know a thing or two about bad credit auto loans, and we have a nationwide network of dealerships that assist bad credit borrowers. We aim to match consumers to dealers in their local area that help with credit challenges. If you’re in need of auto financing, start right now by filling out our free auto loan request form. We’ll look for a dealer in your local area at no cost and with no obligation.

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