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When it comes to car buying and car leasing, everyone wants to get a good deal. It’s human nature, sort of. Basically, most of us work hard for the financial standing we have and we don’t want to spend a year’s worth of money in one shot. Understandable, practical, sane. For those not in the know, credit plays a big part in car buying and leasing, and when it comes to leasing, there are few other factors one can control to get a the best deal for their needs.
Getting All Your Ducks in a Row
We’ve heard the saying before. It’s a phrase that lends itself to having everything organized and prepared for a certain goal. For car buying, this comes down to one’s credit score and credit history. For anyone unfamiliar with credit and credit scores, the latter falls between 300-850, and the higher the number the better. A FICO auto (credit) score has a small difference in the range, from 250-900. However, unlike a regular credit score that oneself can access via requesting it through a credit bureau like TransUnion, Equifax, and Experian, or going online and signing up with creditkarma.com, an auto credit score isn’t available to the public.
Auto credit scores are different however. Aside from how high one’s credit score is, credit history is a big one for car buying, online or at a dealership. Has the consumer taken out any loans and how quickly were they paid off? Did the loan end up going to a collection agency? Is there a pattern of late payments, late fees, or altogether missed payments on the loan, the consumers bills, or anything else requiring them to pay in a timely manner? These bits of credit history can affect the ability to lease or the cost of a lease.
The big concept to keep in mind is payment-to-income ratio. In laymen’s terms, the payments one incurs should be smaller than their income. Like a debt-to-income-ratio, there is a percentage of the income amount that should not be exceeded by the payment amount total. There is no magic number or “sweet spot” for this ratio because credit score and credit history play a big part in the decision. Just know, if the buyer has a lot of payments that consume a good part of their monthly income, they may need a co-signer on their lease.
Factors One Can Control
One can control everything mentioned above. After all, they are the ones responsible for their own credit and credit history. If looking for a better deal, there’s a few more things a consumer can do. Before we go forward though, let us clear the air. When it comes to a lease, down payments tend to be a tricky subject, and most consumers won’t bother if they have the opportunity to forego it. Why pay $2,000 upfront for a vehicle you’ll have to give up in a few years anyways? Well, although that may be true, placing a down payment on a lease will lower the monthly payments during the lease term just like in a finance deal. The only difference is that in a lease, you are not increasing your equity by putting down money, you are only reducing the monthly payment whereas in a finance situation, you would instantly be adding equity.
A lease term, or how long the lease lasts, will also have a direct impact on one’s monthly payments. The longer the term, the more one has to pay each month. This is because, just like with purchasing a car, its value will go down with every passing year, wear and tear, and miles. However, when leasing a car, since the lease only lasts a set number of months and then the consumer returns the vehicle to the dealership, the dealership then has to try to lease or sell that vehicle following its depreciation of value. Thus, the longer a lease, the more the consumer has to pay to make up the difference to the dealership.
There is another thing one will want to check when depending on the duration of the lease - car warranties. A car warranty, say the usual 3-year basic warranty found on most vehicles, would end during a 48-month (4 years) lease term. Best to go with a lease term that ends before the warranty does so if anything were to go wrong with the vehicle while in lease, the manufacturer covers the costs.
Another factor to consider when dealing with lease term is the mileage allowed. A standard lease will last for 36 months with a maximum limit of 10,000 miles/year. The easiest way to get a higher mileage limit is to simply request it. But remember, the more miles on a car the more a car loses its value, so the cost of adding more miles will be factored into the monthly payments, making them higher. Of course, if paying a large down payment, as mentioned above, the monthly payments can be brought down considerably, so a higher mileage limit may be more affordable in the end.
If opting for more miles, the next step is to buy an excess wear and tear protection package. This package will forego dents, scratches, stains, tire damage, and a lot more at the end of a lease; even if the car has depreciated a lot more because of such, the lessee is not responsible if they purchased the excess wear and tear package. We will discuss this more in next week’s article on future resale value protection packages.
It may sound difficult, but that’s the world we live in. Credit is everything when it comes to car buying and car leasing. There are some factors we can control, but it’s better to start strong when leasing a car. Luckily, with NowCar, we have many ways to help you get a good deal and a cheap lease, regardless. Sign up today and find out your savings when buying a car online with NowCar.