If you have bad credit, getting approved for an auto lease can be difficult. “Lease-here, pay-here” (LHPH) dealerships may be able to offer you a lease, however, there are drawbacks.
Leasing a car with bad credit can be a nightmare. Many times, your credit applications will not be approved, and, if they are, they come with high financing costs. Lease-here, pay-here dealerships may be the solution. They offer people with negative credit history the chance to lease a used vehicle.
How does it work?
Dealerships that offer this type of financing, often also offer “buy-here, pay-here” (bhph) financing options as well. A bhph dealer offers in-house financing by financing the purchases themselves. They do not work with other finance companies.
The drawbacks
If you are considering a “lease-here, pay-here” lease, there are a few things you need to know.
They can be expensive.
The lease payment for this finance option can be very expensive. The rent charge, which is essentially the interest rate of a car loan, is very high. This can make your monthly payments very high on an older car that might not be worth the high cost.
Frequent payments
“Lease-here, pay-here” dealerships often have different lease terms than a typical lease. They often require weekly or bi-weekly payments, not monthly.
Do not miss a payment. The dealership might disable your car with a starter interrupt device installed on your car.
Repairs
Cars from these dealerships are not always covered by the manufacturer’s warranty due to the age of the vehicle. If the car needs repaired, it will be your responsibility. In addition, LHPH vehicles often need more routine maintenance than a newer car.
Financial Reporting
Unfortunately, none of these payments will be reported to the credit bureaus. Even after you have fully paid the note, it’s realized as a traditional sale and finance transaction as if you paid cash upfront.
Other options if you have bad credit
“Lease-here, pay here” dealerships are not your only option if you have bad credit.
Co-signer
A willing co-signer with good or excellent credit can increase your odds of being offered a lease. Keep in mind that a co-signer is just as responsible for the lease as you are. If a payment is missed or late, it will not just affect your credit score, but theirs as well.
Used cars
Buying a lower-priced, used car may make more financial sense, especially if it is a well-known reliable brand. Always look for vehicles that have remained on the property for some time, the prices may lower or you may be able to negotiate.
Some lenders will consider offering an auto loan if you have a bad credit score. Some dealerships even have a special finance department that may be able to help you. Unfortunately, you may pay high interest rates.
Other things to note
“Lease-here, pay-here” dealerships may seem like a good option if you have a poor credit history. However, the high leasing cost and repair responsibility can make this option very expensive.
Explore your other options, especially if you do not need the car immediately. If you have time, building your credit can greatly improve your chances of being approved for a car lease in the future.
It is also important to note that sales tax is remitted from the sales price. In most states, sales tax will be charged through the payment process of the lease.
Lease-here, pay-here dealerships operate differently from franchised car dealerships. The cars they offer are property of the dealership and they prefer to maintain this ownership in order to maximize their gross profits on the lifetime of the vehicle.
They are able to make cars more affordable with unique leasing aspects, including deferred federal and state tax liability for the dealership.
