Lease or Buy
Posted on January 24, 2006 - Filed Under Credit |
It’s time once again for credit Tuesday!
Relax. I can’t talk about this forever.
I worked with a loan officer for about two months. The business was (or still is) really booming for refi’s of houses and she felt I would make a good loan officer. At that time I was desperate to do something new so I agreed to work with her.
A client had given her permission to run his credit (-10 points) and she was glancing it over. She let out a sigh. There was a lease on his credit report.
With all the manipulations you can do with your credit, a lease is something that you can do absolutely nothing about. Pay your lease off early? Not possible. Part of the lease program is the number of miles you have on your vehicle when you turn it in. No one will know the number of miles until you actually give the vehicle back to the dealer.
Much like the balance on a credit card, your credit score gradually increases the more of the car you have paid off. What helps is the fact that at some point, you owe less than what the car is worth and this greatly affects your score. When your car is paid off past the 50% mark, your score jumps and then jumps again at the 30% point. When it’s finally paid off, you’re back to normal. But this only applies to purchases of vehicles.
With a lease, it doesn’t work that way. Your credit score does not reflect that you have 50% of your lease gone or even 30%. It doesn’t have a total amount that you owe and how much you have paid off. On your credit report, the lease of a vehicle looks like a giant black hole with no end in sight. And I mean that literally. Nowhere on your credit report does it say that your lease will terminate in November of 2007.
What makes leasing an automobile so attractive is that the payments are significantly lower than buying. Everyone knows this because there’s only 5,267 commercials on television that tell us that. But, as usual, they don’t tell you that it’s going to blacken your credit report for the entire duration of the lease.
This isn’t a debate on whether you should purchase or lease a vehicle. This article was only written so that you understand what’s going on with your credit when you go one way or the other.
This last March, I talked to my Loan Officer for the first time about getting a loan. The first question she asked me was "How much is your car payment?" I smiled and said "None. It’s paid off." She smiled and said "If you keep it that way, I can get you into a investment property."
The proof is in the pudding.
By the by - my car is from 1993. It’s 12 years old with 137,000 miles. Runs like a champ and I won’t even think about replacing it for at least another year.
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Although with a lease you get a tax write off as well.