For many drivers, leasing an automobile provides an affordable method of getting driving of the new car. But to consider advantage of lower payments, you have to qualify.
What credit score do you need to lease a car?
The credit rating required to lease a car differs from dealership to dealership. At most dealerships, you will need a score of 620. Anything below that is considered subprime. Although a lot of dealerships prefer a score of 700, you might still have the ability to be eligible for a a lease.
The higher your credit rating, the more favorable the leasing offer you will receive. However, you can still expect a great leasing offer having a credit score within the 670 to 739 range. This is because lessors also consider your present income, employment history and current debt obligations when you apply.
What to consider when leasing a car with bad credit
Taking steps to enhance your credit score can help you overall, but you can continue to potentially lease a vehicle before repairing it — just be conscious of these potential pitfalls.
High cost
Having a low credit score could mean you will have to do more to qualify for a leasing agreement. For example, the casino dealer may ask for a larger down payment. Your lease offer may also include a higher interest rate, known as a money factor or lease factor in leasing terms. This could inflate the cost of your monthly lease payment beyond what you can afford.
Vehicle restrictions
Leasing a car has restrictions much like renting a car, for example limited mileage each year. If you're over your allotted mileage, you will have to pay a per-mile fee.
No equity
And at the conclusion, you walk away with no equity within the vehicle, meaning you won’t have any trade-in or monetary value to use towards the purchase or perhaps a new lease. Having a higher payment, you may not be able to save enough on the side to pay for another lease.
Ways to enhance your chance of lease approval
If you are set on leasing an automobile with poor credit, there are a few things you can do to improve the time of approval.
Make a sizable down payment
To show your potential lender that you are committed to paying down your lease, try and pay a lot more than the minimum money down. This is known as capitalized cost reduction. The greater money you put down initially, the low your monthly payment is going to be.
Get a loan cosigner
Another way to gain approval is by obtaining a cosigner. A cosigner adds a layer of security to the lessor. The cosigner shares equal responsibility for that lease and will have their credit affected if you don't pay. If this is your chosen route, make sure to select a trusted friend who has a stronger credit history than you.
Aim to lower your debt-to-income ratio
Lowering your debt-to-income ratio is another green flag for leasing companies. Your debt-to-income ratio, or DTI, is understood to be your monthly obligations divided by your monthly income. As someone with a bad credit score, you want to try to lower the dpi by paying off debts, refinancing to some lower rate or increasing your income. Use a debt-to-income calculator to get this number.
Shop around
When searching for a car lease, look around at several dealerships and leasing companies to determine what offers the cheapest price to customers with poor credit. Given each dealership evaluates lease offers differently, it's possible you could get a better lease offer than you anticipate — and potentially at a lower rate.
Alternative methods to lease a car if you have bad credit
If you cannot get a lease or perhaps a lease with favorable terms, a lease transfer might be an option. Companies like SwapALease and LeaseTrader specialize in pairing people who would like to get out of a lease with those who desire a lease. While lease takeovers still require a credit assessment to qualify, the terms could be more favorable without requiring a down payment.
Another choice is leasing a used car. Leasing used cars is not something all dealerships offer, so you may have to look around to find a dealership in your town that offers this service. If you do, take note of all of the terms and how much you'll pay over the term from the lease. You may find a much better deal by buying a used car.
The bottom line
Although you'll be able to lease an automobile with bad credit, you may not receive a competitive lease offer. This could mean a bigger down payment, higher monthly payments or leasing a car that isn’t your first choice.
If you've time, taking steps to improve your credit score could cause a better lease agreement later on.
