If you have bad credit in Canada and you need a car, you may be considering leasing a vehicle, rather than purchasing a car. In some cases, this may be a good choice – but it’s not always the best move.
In this article, we’ll discuss a few of the things you should keep in mind when shopping for a lease on a new car with bad credit. Let’s begin.
1. You Probably Won’t Qualify For Special Deals (And May Have To Pay High Interest Rates)
If you’ve seen advertisements on TV for incredible lease deals, such as $0 deposit and monthly payments under $200, you need to realize that these deals usually only apply to people who have great credit scores (750+ FICO score).
That doesn’t mean you can’t get a lease, of course. Some lenders are willing to lease cars to folks with subprime credit scores. However, you will likely have to pay a higher interest rate on your lease.
2. Your Monthly Payment Will Be Lower With A Lease (But There Will Be Restrictions)
Despite the fact that you may have to pay a higher interest rate if you have bad credit, your monthly payment will still likely be lower than it would be if you purchased a new car, or a late-model used vehicle.
This is because when you lease a car, you’re essentially paying for depreciation. You’re not paying for the actual value of the car (which could be $20,000 or more). You’re paying for the amount its value will decrease over the lease term.
This means almost all leases will be cheaper on a month-by-month basis, compared to purchasing a car. However, most leases also have mileage restrictions. You can usually only drive them 20,000-25,000 kilometers per year, and you may have to pay extra fees if you exceed this limit.
3. You Don’t Have To Worry About Most Car Repairs
Another benefit of a lease is that the car will usually be covered by a “bumper-to-bumper” warranty. The dealer will be responsible for pretty much all major repairs, and you only have to pay for maintenance like oil changes and tire rotations. And since the car is brand-new, it’s unlikely to have any major faults, which is a good thing if you don’t have money in your budget for car repairs.
4. You’ll Need More Expensive Insurance
One drawback of a lease is that you will need to have comprehensive and collision coverage from your insurance company. You may also need gap insurance, depending on the dealer and their policies.
This means your insurance policy will be much higher, compared to the price if you have only liability insurance. This is certainly something to keep in mind when you’re budgeting for a new car, and considering a lease vs. the purchase of a used car.
5. You Probably Won’t Be Able To Get Out Of Your Lease
It’s usually quite difficult to break a lease, as dealers don’t want you changing your mind and choosing a different car. If you do break your lease, you’ll likely have to pay some significant penalties. You may even be responsible for paying all of the remaining payments on your lease.
This makes a lease much less flexible than the purchase of a car. If you buy a car, you can sell it at any time – and you can use the money you get from doing so to pay off your remaining loan.
This means it’s easier to get most of your money back if you are unable to afford your monthly payments, and are worried about repossession.
Consider All Of Your Options When It Comes To Leasing Vs. Buying
While it may seem that leasing is a better option with bad credit, it can often be quite restrictive – and if you need to break your lease for any reason, you could be subject to severe penalties.
In most cases, purchasing a high-quality used car is a better option than leasing a new vehicle. You’ll be able to get low monthly payments, and a reliable car that will have no mileage restrictions or other such issues.
Even if you have bad credit, we can help you find the right used car at Ride Time. Whether you’re in Winnipeg or anywhere else in Canada, browse our vehicles now, and learn more about our financing options for Canadians with bad credit.