If you’re in the market for a new car, leasing is one option to consider. It allows you to rent your car for a set period of time using monthly payments. But if you have a bad credit score, the chances of getting approved for a lease can seem slim.
You may be wondering, “Can I lease a car with bad credit?”
While in many cases it’s possible, leasing a car with bad credit often comes with obstacles. Here’s how to set yourself up for success, and what you need to know to access the best deal.
Can I lease a car with a low credit score?
Yes, you can lease a car with low credit. However, the minimum credit score you need to lease a car is determined by each dealership or leasing company. This means that depending on your score, you might get turned down by some and approved by others. The key is to find the right business for your credit profile and watch to ensure that you get the best deal possible.
How to qualify to lease a car with bad credit
It’s more difficult to qualify for a lease with a lower credit score than what is considered prime. However, car leasing companies may look at other factors to understand your financial situation. They may want to see proof of income, employment history and current debt obligations.
These tips may improve your chances of getting approved for a lease:
Pay more than the minimum down payment. Exceeding the minimum down payment shows your commitment to paying off your lease, and that you can afford to complete the lease. Plus, the more money you put down up front, the lower your monthly lease payments will be.
Get a co-signer. Choose someone you trust with good credit. By co-signing your lease, they are sharing responsibility for the lease with you. If you do not make your lease payments, the co-signer will have to pay them, and their credit will be affected. Be sure you are not taking advantage of your co-signer — their credit is on the line, too.
Build good credit history over time. If you’re able to wait to get a new vehicle, consider taking some time to rebuild your credit. In addition to aiding your overall personal finance goals, cleaning up your credit report could save you money and open doors to more financing options in the future. Even those with “poor credit” can improve their score over time with good financial habits.
What to watch for when leasing a car with bad credit
There are benefits to leasing a new or used vehicle instead of taking out an auto loan, such as lower monthly payments and little to no repair costs. But there are drawbacks to signing a lease contract, especially if you have a low credit score.
Higher interest rates. Also represented as a money factor or lease factor, your leasing company might charge you higher interest rates if you have a lower-than-average credit score. You could end up with higher monthly payments as a result.
Higher minimum down payment. You may be required to pay a larger down payment or security deposit to qualify for a lease.
Maximum mileage limit. If you exceed a certain amount of miles during your lease, you might have to pay a fee.
No equity. With a lease, you are renting your vehicle. Even after paying all of your monthly payments, you won’t own the vehicle at the end of the lease.
Taxes and fees. These can add up, so be sure to factor in these expenses when budgeting for your new or pre-owned vehicle.
A dealership’s in-house financing department might be more flexible when it comes to leasing to those with bad credit. But be careful — they often have high interest rates and hidden fees.
Why does a credit score matter when leasing a car?
Your credit score indicates the likelihood you’ll be able to repay your lease on time. When leasing a vehicle, your car dealership or leasing company wants to be sure you can adhere to the lease terms.
According to Experian, a good credit score for leasing a vehicle is 670 and higher. These prime scores make up 65%of vehicle financing. Credit scores 501 and lower are considered subprime, and make up less than 17% of vehicle financing.
FICO Auto Scores are another way car dealerships determine creditworthiness. The scores range from 250 – 900, which is a slightly different bracket than the major three credit bureaus.
When you’re looking to lease a car, be sure to shop around to get the best lease deal possible.
Alternatives to leasing a car with bad credit
Lease transfers. Also known as lease swaps, lease transfers allow you to hand over your lease to another driver. This other driver could be a friend or family member, or you can transfer your lease through a service that connects leaseholders with lease seekers. This option still requires a credit check and credit approval, however.
Car-sharing services. Rent-a-car or ridesharing services might be a good short-term solution if you don’t need to travel by car on a frequent basis.
Buy a used car. It may be easier to qualify for a car loan than a car lease if you have a low credit score. Since borrowers are responsible for the depreciation of the vehicle, auto loan lenders may be more willing to approve those with low credit.
You’ll also own the car after you complete your loan payments, which gives you an asset you can sell in the future. Furthermore, you won’t have to worry about paying maximum mileage fees or keeping the car pristine.