Category: auto leasing

Leasing with bad credit

Have you been refused a car lease? Chances are you have less flawed credit
history. Know whats involved and what you can do to build good credit
history.

Credit score is a measure of your credit worthiness used by leasing agents
to determine whether you are eligible for a lease. You credit score is
based on your past and present credit history, and can range anywhere from
350 to 850. A measure above 720 is considered a prime score and will
land you the best rates. If you are below 640, then you are sub-prime
and will be considered bad rating by the bulk of leasing agents. This is
where all the trouble in getting that lease comes from.

Ask for your FICO Credit Score from the Fair Isaac Corporation (FICO)
which details your credit score held by all three leading credit score
agencies in the country. Compare the three credit scores and determine if
any agency is holding erroneous credit data about you. Contact the
reporting agency and getting corrected.
If there are no mistakes in your credit report, then you can take some
steps to maximise your score to go above the threshold of 640. Pay your
bills on time and pay down any credit card debts you have. Do not take any
new accounts as this might increase the likelihood of you getting into bad
credit thus worsening your credit score.

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Single-Payment Lease

A prepaid lease is a new type of lease which has made its foray into the
market in recent times. In this lease, consumers forego the cycle of lease
payments if they make a large payment at the beginning of the lease.

There are two amounts in a conventional lease that incur charges and
determine your monthly lease payments. First, there is a depreciation
charge which accounts for the value the car loses during the lease term.
Second is a residual amount which is the projected value of the vehicle at
the end of the lease. The sum of these two charges gives the monthly
payments on your lease.The idea behind a pre-paid lease is to eliminate the
finance charges for depreciation and only account for residual value
charges in a single, pre-paid payment at the beginning of the lease.

Single-payment leases are devised with spendthrifts in mind: no cycle of
monthly payments, a new car every two to three years and no interest in
purchasing the vehicle at the end of the lease. You should only consider
this type of lease if you are concerned about not being able to make monthly
payments and have a lot of cash upfront.

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Leasing and your credit score.

Your credit score is part of the leasing decision. When you apply for a
lease, your lease company will typically look at your credit score to
decide whether you to approve the application.

The leasing contract stipulates that you make regular, monthly payments
over your lease term. The credit score you lease company requests
identifies how likely you are to make such payments. It is simply a number
calculated according to a model that takes into account your payment
history, any amounts you owe and credit currently in use.

It is very important to keep a good credit-score, usually above 700, to
qualify for a lease or any other lending decision. Start by ordering your
credit report from Fair Isaac Corp, the company that creates your credit
score. If erroneous data is held about you, then contact the creditor
responsible and get such information corrected.
Your payment history is the single most important factor in determining
your credit score, so get in the habit of paying everything you owe on time
and keep the balances low in your credit cards.

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Auto Leasing Scams

Car-leasing has been lauded as a more attractive alternative to buying,
offering in the process the flexibility to drive a new car for less. The
reality, however, is that leasing is an option that is fraught with many
pitfalls for the average customer. Leasing regulation does not require as
much disclosure as buying a vehicle. This has given rise to many leasing
scams that trick the customer into believing they are into a good deal
when, in effect, all he is getting is a rough deal on the dealers terms.

Here we look at some of these common scams and how to avoid them

Artificially low interest rates:

Some dealers quote a lower interest rate when in reality its much
higher. They do this by either purposefully quoting the money factor as
the interest rate or calculating the loan without amortizing some closing
fees, like the security deposit, into the loan lease. Take the money
factor for example: this is typically expressed as a four decimal digit,
something like 0.004. Some dealers quote this as a 4% interest rate when
in fact you need to multiply it by 24 to get a rough idea of the interest
rate on your loan. In this example, the interest rate is a much higher 9.6%
than the quoted rate of 4%.
Make sure you crunch the numbers and understand the formula they use to
calculate their interest rate. Look out for any fees not factored into the
calculation. If you are not satisfied, do not enter into the lease
agreement.

Terminate your lease early for a low penalty

This is an all-time leasing scam. You ask your dealer how much you will pay
if you want to terminate your lease and he tells you: You want to get out
early? Sure thing, you only pay an early termination fee of $300. What he
is quoting is only the small administrative penalty of early termination,
there is a much stiffer penalty called early termination fee and this runs
into thousands of dollars.
Do not confuse the early termination administrative penalty with the
termination fee. Read the small print carefully and know exactly how much
you will get charged should you terminate your lease before its scheduled
end.

Pay for an extended warranty you dont need

This is another shell game to inflate the dealers profit at your expense.
The dealer slides an extended-warranty into the deal whilst its already
factored into the monthly payments, or he tricks you into buying a 36-month
warranty on a 24-month lease.
You do not have to pay extra money for a warranty already built into your
payments or for one that goes well beyond your lease term.
They might slip an extended warranty in. Dont be fooled, the warranty is
already factored in.

No security deposit

Any dealer who advertises a $0 security deposit is not telling you the
whole story. A security deposit is always factored in the lease under the
provision for disposition fees.

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