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I've read that it's generally harder to qualify for a car lease than a loan. Presumably, I think, because lenders want you to have equity in the car and therefore you'll be less likely to forfeit it.
My situation is this. I have Auto Fico scores ranging between 620 and 635. I make a good income; I'm in sales and it ranges between $160K and $275K generally. This year I'll be right around $250k.
I'm paying off an IRS tax lien, however, to the tune of $1425 a month, with a balance of about $51k. I have three kids and I'm paying down our $30k credit card balance at the rate of $600 per month. I'm also paying off a $450 car loan (through cap 1) and have about a $17k balance on that. My rent is $2300 a month. So...cash is pretty tight.
At then end of January, I am getting a commission that should be around $38,000, net of withdrawals. I'm going to put a year's worth of IRS payments ($17,100) in a separate account and have them begin to automatically withdraw that...when I get it to $25k, I will apply for a release of the lien.
So I will have about $21k left. We are driving a very old minivan that is now really stressing me out. It's probably only worth a couple of grand at this point and I need to upgrade. We won't put a ton of miles on it...probably right around 12,000 a year. So I'd like to lease a new one. I doubt I will be approved through standard auto financing channels.
Why is it that prepaying a lease Iv'e heard doesn't really help? I figure I would need to pay about $12k and have the lease for 3 years. Would that not significantly reduce risk to the lender? I presume there is still the risk of running up the miles and then at the end not paying for it...is that why?
Anybody with any suggestions on what I might do? I don't want to buy a used one . Used minivans don't hold well and I really woud like to give a nice minivan to my wife and kids to use.
Generally you do need better credit for a lease but it still does not have to be perfect. Prepaying a lease generally doesnt help qualify because even by prepaying it doesn't change your financial picture. There is a chance you could damage the car, go over the miles etc. Someone with better credit is more likely not to excessively damage the car and if there are mileage or wear and tear charges they are more likely to pay at the end of the lease.
IMO you may qualify for a regular lease depending on the auto manufacturer if everything else on your reports is good besides the lien. With a single pay lease it would most likely be reported on your credit for one month showing the total amount then paid and closed vs. a standard lease where all your payments will be reported. If you dont qualify for a lease think about just buying a reliable car for cash.
Talk to the finance manager.
When I did my lease, he was just casually talking about "rich" people (lol) and how they generally do that as some of these "rich" people don't have very good credit because they just don't generally use it or have the need for it.
What they'll do is pay for the entire lease upfront like what you want to do. No monthly payments, etc. They still run credit, though, but I kind of got the sense that qualifications are less, at least that was kind of implied by the way he was casually talking to me.
This was at a Lexus dealership btw.
When I spoke to BMW about Pre-Pay it was MUCH easier to get approved because you are paying the entire part up front that they would normally collect from you... the remaining balance would be what they set the car to be worth at the end of the lease, so that is their calculations.
However, I would probably look into either putting down payment of $10k on a new one and finance one (bet you get a good rate with that much money down) or even better, paying cash for a used one!
I would never pay off a lease early. I am currently on my 3rd leased vehcile and the previous two the dealership bought out early. For example, I just got a new car yesterday (from the same company) and they paid out my remaining 7 months on the previous lease b.c I was so far under milage and the car was in excellent condition. Had I prepaid the lease, I would have spend an extra $3K.
How's your DTI?
I would say either 1. Use the cash to pay off the CC stuff and finance a vehicle or 2. Buy a really nice used minivan or SUV with the 21K.
Leasing is a loser, and once your debts are paid you can upgrade to something even more nicer. You can get a practically new vehicle for that amount (on a cursory search I found a grand caravan with third row seating for 19K with only 10K miles on it, 2015 model). You'll have no bills, a warranty, and when one of your kids pukes in the back seat on the way to the doctor one day you don't have to worry about paying off seat damage to the leasing company.
It could be a good mid step while you get the lien worked out and your scores go up, it won't lose a ton of value by next year and you can trade it.
Leasing isnt always a loser though usually it makes better long term financial sense to buy.
It sounds like OP may be self-employed in which case the auto lease could be a partial tax deduction. It also sounds like OP may benefit from the car not being titled in their name with the open tax lien. The car wouldnt be an asset if OP is just a leasee and it may keep their DTI lower. Plus they could benefit from the credit reporting of the lease and then buy a car later with a good rate when the lien is satisfied and the credit is better.