Do you have poor or no credit? Leasing a car can be the best solution if you want to save money or have a limited source of income. Leasing a vehicle makes it possible to drive a new car with low monthly payments.
But, can you lease a car with bad credit? Leasing a car with bad credit can be quite difficult. Leasing still remains an easier option compared to buying a car with an auto loan.
If you are wondering what credit score is the best to lease a car, you are not alone. Like other things and terms in the financial world, there is no definitive answer. This is because several factors come into play.
Your minimum credit score can be different from the score required for another person. When leasing with bad credit, it is always advisable to find the cheapest car to lease. This will make the leasing process seamless and reduces financial strains.
How Does Leasing Work?
Leasing is not similar to buying a car. Instead, you make an agreement with a leasing deal that you rent the car for a given period – often 36 months. To secure the car, you will have to make a down payment.
But there are some vehicles such as the Toyota rav4 lease no money down, which allow zero down payment. You will then be required to make monthly payments during the lease period. You will also be responsible for all maintenance and insurance costs during the period.
Dealers often give customers the option of buying the car after the lease period ends while others stipulate that you should hand back the car once the lease is up. Leasing can be a good option if you don’t like holding on to one car for long.
However, if you have a long-term need for a vehicle, you will be better off purchasing. Getting to know how to lease a car with bad credit is important to avoid unexpected setbacks.
Check Your Budget
Once you are sure you want to lease the car, decide the amount you can afford to spend each month. Lease payments are often less expensive compared to equivalent monthly payments for car purchases.
You can afford a nice model with bad credit car leasing. If you want to buy the car at the end of your lease, try saving up during the lease period to buy it when your lease is up.
You should as well consider the monthly insurance costs if you have never owned a vehicle before. Car insurance is a must-have necessity if you want to drive a vehicle. You should have a valid insurance policy to get on the road.
Monthly insurance premiums vary depending on many factors. Among them include where you live, gender and your credit score. Always sample insurance quotes from various companies to get an idea of what you should pay before getting a lease.
Select Your Car, Negotiate and Apply
With a predetermined budget and insurance policy rates in mind, you should then visit the car dealership to check the various vehicles available for lease. Most leasing dealerships sell cars after lease, thus only the new models are available for lease.
Since leasing is confusing, ensure that you consult widely with a salesperson for assistance. Shop for a vehicle to lease the same way you would shop when buying a car. Take it for a test drive, check its features, comfort, fuel efficiency and more. Don’t be afraid to check various dealerships before choosing the car.
If you have found your preferred car, negotiate the leasing terms with the dealership. Make sure that you haggle everything from monthly lease payments, additional fees and dealer charges during the negotiations. Ask for possible fee reductions, waivers, and discounts. You can check multiple dealers until you find one that works for you.
Dealers will often ask for financial information, bank statements, or employment history to ascertain that you can afford the lease payments. Based on this, the dealer can change the terms of the offer or cancel the deal, especially if you have bad or no credit.
Established dealers can offer no credit check car lease deals. Knowing your credit score is important before visiting the dealer to avoid such embarrassing surprises.
Can You Lease a Car With Bad Credit?
Having understood the prerequisite steps of leasing, can you lease a car with bad credit? It is possible to lease a car with bad credit. Note that it can be difficult to source funding and a good lease deal.
Dealerships often limit their lease deals to reduce the risks of financial loss. You will certainly get a lease, but you will have to make a huge down payment and incur high monthly payments compared to those with a higher score.
As a rule of thumb, lease dealerships lease vehicles to individuals with good or above-average scores. If you have bad credit, you should take some time to improve your credit score to find a better lease deal.
Even if your score is in the good range, find options of bettering it to access low down payments, low-interest rates, and better lease deals.
What Credit Score is Required to Lease a Car?
As mentioned, some dealers will have to check your credit score to lease a car as part of the process. Low credit scores get less favorable terms. Besides, low scores attract high down payments. So, what is the minimum required credit score required to lease a car? There is no specific number as the number varies depending on the lender.
Nonetheless, most auto leasing companies prefer FICO scores from 700 and above. This falls solidly within the FICO ranks of good credit. FICO scores below 579 are considered poor, 580 to 669 are fair, 670 to 739 are good, 740 to 799 are very good while those with 800 and above are considered excellent.
A credit score ranging between poor and fair may give you a tough time securing a lease deal. Having a clear understanding of the leasing process, and how the credit score influences the lease will ease the process.
How to Improve Lease Approval Chances Before Applying?
To improve your chances of being approved for a lease with bad credit, observe the tips below.
Make a Down Payment
Paying some money–the capitalized cost or cap-cost reduction when signing for a lease deal can increase your chances of being approved for a lease. You should save some money to make a large down payment before applying for the lease.
This lowers the amount of your lease, monthly payments and increases the chances of being approved. Note that most leasing companies have restriction guidelines on the cap-cost reduction payment that can be made.
Reduce Your Debt to Income Ratio
The debt to income ratio is a calculation of your monthly debt payments and your monthly gross income. Lenders consider a low debt to income ratio as a positive approval factor for those applying for a car lease with bad credits.
Have a Co-Signer
If you have poor credit, request a family member or friend with a good credit score to co-sign your car lease. This provides undoubted reassurance to the leasing company that monthly payments will be submitted without delay. Always remember that failing to pay puts the co-signer on the hook.
How Does Leasing Affect Your Credit Score?
Leasing impacts your credit score in several ways. Like any other type of financing, the payment history has a significant effect on your credit. With timely repayments over time, you will notice a significant improvement in your credit score. If you miss or delay making payments, your credit score suffers.
Calculation of credit scores includes all the amount of money owed, and leases are included. Fortunately, a lease is considered an installment loan with a fixed repayment period, which is more favored compared to revolving credits.
As you continue making lease payments, your credit score improves since it lessens the amount owed. Whereas leasing can help rebuild your credit score over time, you will experience a slight dip in the score when you first take the lease.
How to Improve Credit Score Before Leasing?
If you think leasing is right for you but have bad credit, you should prepare beforehand. Below are some easy credit-building steps to improve your score.
Have a Credit Monitoring Service
Credit errors are a common phenomenon in financial institutions. Using a credit monitoring service will help identify cases of theft by providing alerts on new items included in your credit report.
This helps prevent any damage from fraud before it leaves serious damage to your credit score. You should sign up with a credit monitoring service such as privacy guard, credit karma, identity force, and identity guard among others before working on your credit score to track the progress.
Use Credit Builder Loans
Credit builder loans, as the name suggests, are small, low-interest personal loans that help people improve their credit scores. The institutions offer lump-sum payments that can be used for anything.
You should then pay back the loan in monthly installments with slight interest. The loan provider reports on-time payments to major credit reporting bureaus, consequently raising your credit score.
These loans are a good way to prove that you can manage credit repayments and adds some diversity to your credit portfolio. When opting for this, take a small, manageable loan that you can pay back before applying for the lease.
Make Payments on Time
Payment history is an important factor when the credit score calculation is being done. Submitting your credit card loan and other payments on time is a proven method of improving your credit score. Always check your minimum payment dates for all outstanding accounts and submit the payments on time.
Alternative Options of Getting a Car with Bad Credit
If you have been turned down for a car lease or not sure if leasing is a good option, below are some possible alternatives to leasing with bad credit. Some could be pricey, and your credit history can still be an obstacle but it is worth considering as you find options to boost your credit score.
Find Buy Here Pay Here Dealers
BHPH dealers are independent used or second-hand car dealers who provide auto-financing options instead of financing companies or banks. Typically, they cater to customers looking to drive but with bad credits and those recovering from bankruptcy.
BHPH loans are expensive and charge high-interest rates compared to conventional loans. They also show less leniency compared to conventional lenders. A missed payment, for instance, can lead to car repossession without warning.
Find Lease Transfers
Also known as lease swaps, you can easily be approved to take over another person’s lease agreement. In such a case, you will be responsible for making all the remaining payments and fulfilling original lease conditions.
Leasing companies often check the credit history of the driver taking over the lease, but with less stringent requirements. Sites like LeaseTrader and SwapAlease can ease your search for lease-transfer opportunities.
Purchase a Less Expensive Used Car
Going for a low-priced car typically reduces the amount required to finance the vehicle. This lowers the interest and fees payable. Though it depends on various factors, qualifying for used-car auto loans is easier with bad credit than leasing with bad credit.
The Bottom Line
Well, from the guide above, can you lease a car with bad credit? A perfect answer to this lies in your dealer and how bad your credit score is. Note that leasing a car with bad credit is not impossible, especially noting that there are several ways that you can leverage to lessen your financial burden.
Always fetch for dealerships with departments focused on people with less than stellar credits. Even though you are approved for a lease, you will likely incur high-interest rates. If you can wait, take the necessary steps to rebuild your credit score before lease shopping.