With bad credit, you can lease a used car at best. Most leasing companies that accommodate bad credit usually stock used cars. Consequently, the monthly payments on the lease should be much lower than when leasing a brand-new vehicle. However, that’s not always the case. Leasing companies consider lessees with bad credit to be risky. Therefore, they tend to price their car leases based on your credit rating.
It is up to you to ensure that your monthly payment obligation is affordable. You do that by taking steps to identify cheap used car leasing companies. After that, you can compare several offers and choose the most affordable one. This article discusses how to lease a used car with bad credit. It has all the details you need to pick the right lease deal. Read on for more information.
What Credit Score Do You Need to Lease a Used Car?
You don’t need a perfect credit score to lease a car with bad credit. While most leasing companies require a credit rating of 700 for brand-new vehicles, second-hand car dealers may have a much lower standard.
The leasing company will likely check your credit rating with the view of determining your creditworthiness and not disqualifying you for the lease. That’s because the credit score is only one of the factors that go into determining your ability to repay the loan.
Since a used car has depreciated, it wouldn’t cost as much as a brand-new car. Besides, older car models are less appealing to buyers. Therefore, some leasing companies overlook credit checks and only look at other factors such as proof of steady income.
How to Lease a Used Car with Bad Credit?
Leasing a used car with bad credit is not as simple as it looks. It involves ascertaining that you value money in terms of lower monthly payments and a high-quality vehicle. If you want to lease a used car with bad credit, here are the steps to take:
Step 1: Find Out Your Credit Rating
A credit score summarizes your standing as an individual who understands that repaying debts is your responsibility. Since it changes with time, the credit score reflects where you stand as a responsible borrower. It indicates the level of risk a leasing company will assume by accepting to lease to you.
On the other hand, your credit report summarizes your history as a reliable debtor and a consumer. So, you can check your credit score to know where you stand before approaching a leasing company. Ask a credit reference bureau to print a credit report, which you can show the leasing company as evidence of your reliability.
However, you should avoid doing credit checks frequently since that can lower your credit rating. Credit scores range between 300 and 850. If yours falls below 620, you are sub-prime, meaning you cannot readily qualify for a car lease. If you do, then you are most likely to end up with a used car.
Step 2: Look for Affordable Lease Deals
Narrowing down to one leasing company can be a significant disadvantage since it limits your options. It’s worse if your credit is awful. The leasing company can take advantage and charge you exorbitant interest rates. That way, you could end up with a deal that’s too expensive to handle.
Therefore, you should widen your search to include other leasing companies outside your city or state. Car dealerships are likely to replenish their lots at the end of every year. They might not want to stay with outdated car models longer than is necessary. You will likely find cars that the company eagerly intends to lease out. Pick one of these vehicles as that could be the best possible deal given your poor credit rating.
Step 3: Verify that You Have a Steady Income
Despite your credit rating, you need to prove that you have a steady income to qualify for a lease. On your visit to the car dealership, carry three of the latest pay stubs and evidence of an income that can adequately cover the expected monthly payments. Besides, you should show evidence of how much you are working on getting a better credit score. Where possible, include personal and professional references who can vouch for you. If you have leased a car before, show evidence that you made payments on time. Alternatively, you can use proof of a house lease.
Step 4: Choose a Car
You won’t possibly get your dream car since you have bad credit or are leasing a car with no credit check. Instead, you are likely to get cheaper used cars, which no other person wants. Therefore, when choosing a car, go with an open mind. Being too picky may prove unreasonable and render it impossible for you to get any car. Even where the leasing company only handles clients with poor credit, qualifying for the best vehicle isn’t easy. So, be careful about the vehicle you select.
Step 5: Complete the Paperwork
Even when leasing a used car with bad credit, you have to sign a contract. The company will send you the contract, or you will get it when you visit their premises. Be sure to sign all the copies of the agreement sent to you by the leasing company. Be sure to read the contract before the lease. Often, leasing companies hide small traps within the finer details. If you sign the contract in a hurry, you might get entrapped in an expensive deal for a valueless car.
How to Improve Chances of Lease Approval?
Just because you want to lease a used car doesn’t mean you will always get approval. However, you can improve your chances of qualifying for the lease by taking the following steps:
1. Reduce Your Debt-to-Income Ratio
Apart from your credit rating, leasing companies often consider Debt-to-Income (DTI) when evaluating your suitability for a car lease. The DTI is a simple calculation that involves dividing monthly debt payments with monthly gross income. If your DTI is lower, you are likely to get approval. If not, the leasing company can likely say “no.” therefore, you should improve your DTI by reducing your debt or improving your income.
2. Make a Higher Down Payment
Did you know that making a down payment can significantly reduce your monthly income? If you do not have enough money now, purpose to save until you build a considerable sum to make a down payment. That’s especially easy if you do not need the car now. A down payment not only lowers the amount in monthly payments but also increases the chances of you getting approved. Since leasing companies often restrict the down payment amount, be ready to conform.
3. Find a Co-Signor
You have a poor credit rating, no doubt! How do you increase your chances of getting a lease approval? One way to do so is to find someone with good credit to cosign the lease documents. It can be a friend or a member of the family who is willing to assume responsibility for the debt when you default. The co-signor is a safeguard that enhances the likelihood of lease approval.
What to Consider When Leasing a Used Car with Bad Credit?
- High Down Payment: You have to do more to sign a lease contract with a poor credit score. For instance, you have to show evidence of a steady income and accept to make a larger down payment. That’s because the leasing company considers you a risky borrower.
- Higher Interest Rates: Bad credit car leasing may also come with higher interest rates, technically called the “lease factor” or “money factor.” That can lead to astronomical monthly lease payments, overshooting your budget.
- Differentiated Pricing: Used car dealerships often have different pricing for different car models. Therefore, you might end up with a leasing offer for a car that’s different from what you want. It will help if you approach the dealership with a list of up to four vehicles you can accept instead of your dream car.
- Restrictions: Leasing a used car comes with various conditions, including mileage limits. If you exceed the mileage limit, the leasing company may require you to pay the penalty for every mile over the limit. That will reduce your equity on the vehicle, limiting possibilities to trade in, purchase it, or lease another car.
How Else to Lease a Used Car with Bad Credit?
Has the leasing company turned down your lease application? Several alternatives exist to help you lease a used car with bad credit. They include the following:
1. Take Over Another Person’s Lease
Instead of applying for a lease from scratch, you could apply for a lease transfer or lease swap. After taking over the lease, you will assume responsibility for fulfilling the initial lease terms and making the remaining monthly payments. You can search online for sites that facilitate lease swaps across the United States. However, the leasing company might demand a credit rating similar to the current lessee. So, be sure that you have it.
2. Purchase a Less Costly Car
Why should you struggle to lease a car when you can purchase it instead? By buying a lower-priced vehicle, you get to pay lower interest, resulting in lower monthly payments. That doesn’t mean that the leasing company will overlook your poor credit. Instead, it makes it easier to qualify for a used car auto loan, even with bad credit.
3. Look for a Dealer with Financing Options
Not all second-hand car dealerships are the same. Some sell newer cars by helping lessees with poor credit access funding via a special finance department. Remember, this is a loan and may come at a higher interest rate because of your poor credit rating. However, it remains a viable way to get a used car.
Lease a Used Car with Bad Credit – FAQs
Can you lease a used car with bad credit?
Yes. You can lease a used car with bad credit. That’s because qualifying for a used-car lease is more straightforward than that of a brand-new vehicle. However, you must satisfy other conditions, including proof of regular income only that a used-car lease with bad credit may result in higher monthly payments.
What is the minimum credit score for a car lease?
The exact credit score required for a car lease varies from one dealership to another. Most dealerships may need you to have a credit score of at least 620. If you have a lower credit score, you can still qualify for a car lease, albeit more expensively.
Do you need a down payment to lease a car?
Not always. A leasing company may require you to make a down payment on the vehicle. That’s especially important when leasing a used car with poor credit. It increases the likelihood of getting approved and lowers the monthly payments. However, you don’t need to put any money down if the leasing company doesn’t require you to do so.
Is a car lease easier to get approved?
Yes and no. If you have a good credit rating and a steady income, it is easier to get approved for a lease. On the contrary, a poor credit rating might require you to do much more to get approval.
How do I qualify to lease a car?
To qualify for a car lease, you need an excellent credit rating. That means being current on all existing loans, credit lines, and credit card accounts. You should also prove that you can pay the loan. If you have difficulty, then get a co-signor. Most leasing companies also require you to have insurance and a driver’s license.
It is much easier to lease a used car with bad credit compared to a brand-new one. Used cars are more affordable, attract lower interest rates, and are available for individuals with bad credit. When leasing a used car, be prepared to prove that you can make the expected monthly payment. Also, you might want to save towards a substantial down payment. Apart from reducing the monthly payments, a down payment increases your chances of getting approved for a lease.