What Credit Score Do You Need to Lease a Car?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.Read full bio
At a Glance
When considering leasing a car, one of the essential factors to consider is your credit score. This three-digit number significantly influences your ability to secure a favorable lease deal, reflecting your financial trustworthiness to potential lenders. Generally, a credit score of 620 or above is considered acceptable for leasing a vehicle. However, aiming for a score of 680 or higher dramatically improves your chances of obtaining favorable lease terms and attractive offers.
It’s crucial to remember that individual leasing companies have varying credit score requirements and may assess other aspects of your financial background in addition to your score. Therefore, proactively improving your credit, like paying bills on time, reducing existing debt, and monitoring your credit report for inaccuracies, can pave the way for a seamless car leasing experience.
In this article, you’ll learn:
What does it mean to lease a car?
Leasing a car means that you are essentially renting the car for a specified period, usually for a few years, from a dealership or a leasing company.
When you lease a car, you make regular payments to use the vehicle during the lease term. These payments are typically lower than the monthly payments you would make if you financed the car with a loan, but you don’t own the car outright at the end of the lease term. Instead, you return the car to the leasing company.
Leasing a car can be a good option for people who want to drive a new car every few years without dealing with the hassle of selling or trading in a car. It can also be a good option for people who want to drive a more expensive car than they could afford to buy outright. However, it’s important to read the lease terms carefully, as there may be restrictions on how many miles you can drive. You may be responsible for additional fees if you damage the car or exceed the mileage limit.
of new vehicles in the U.S. were leased in 2022 while the rest were sold.
What are the car lease requirements?
Car lease requirements may vary depending on the leasing company and the type of lease you’re applying for, but in general, the following requirements are commonly required:
- Proof of income: You may be required to provide proof of income, like pay stubs or tax returns, to show that you have the financial ability to make the lease payments.
- Down payment: Some leasing companies require a down payment, typically a percentage of the car’s value, at the start of the lease.
- Insurance: You must provide proof of insurance that meets the leasing company’s requirements.
- Age requirement: You must be at least 18 years old to lease a car, and some leasing companies may require you to be at least 21 years old.
- Driver’s license: You must have a valid driver’s license to lease a car.
- Residency requirement: Some leasing companies may require that you have a permanent address and have lived in the same area for a certain amount of time.
It’s essential to read the lease agreement carefully and understand all the requirements before signing it. Make sure you can meet the terms and conditions of the lease before committing to it.
What credit score is needed to lease a car?
The credit score needed to lease a car varies depending on the leasing company and the type of lease you’re applying for. However, in general, a credit score of 680 or higher is generally considered good and may help you qualify for a car lease with favorable terms.
If your credit score is lower than 680, you may still be able to lease a car, but you may need to provide a larger down payment or accept less favorable lease terms, like a higher interest rate or a shorter lease term.
Remember that a credit score is just one factor that leasing companies consider when evaluating lease applications. Other factors, like income, employment, and payment history, may also be considered.
It’s a good idea to check your credit score before applying for a car lease to know where you stand. You can obtain a free credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. If you find any errors or inaccuracies in your credit report, address them before applying for a lease.
Can you lease a car with bad credit?
Leasing a car with bad credit may be more difficult, but it’s not impossible. Leasing companies typically require a good credit score to qualify for a lease, as they want to ensure that the lessee is financially responsible and can make the lease payments on time.
If you have bad credit, you may need to provide a larger down payment or have a cosigner with good credit to qualify for a lease. You may also be offered a higher interest rate or less favorable lease terms.
How does having low credit affect car lease?
Leasing a car with bad credit will likely come with higher interest rates, fees, and a more limited selection of vehicles. This is because the leasing company is taking on more risk by offering a lease to someone with a poor credit history.
How to lease a car with bad credit?
If you have bad credit and are interested in leasing a car, you may need to consider a few options:
- Look for leasing companies specializing in working with people with bad credit. These companies may be more flexible in their credit requirements and offer more affordable leasing options.
- Consider a co-signer. If you have a family member or friend with good credit, they may be willing to co-sign the lease with you. This can increase your chances of being approved for a lease and may result in more favorable lease terms.
- Save up for a larger down payment. Leasing companies may be more willing to work with you if you provide a larger upfront down payment.
- Consider a used car lease. While new car leases can be more challenging to obtain with bad credit, some leasing companies offer used car leases that may be more affordable and easier to qualify for.
It’s essential to do your research and read the lease agreement carefully before signing anything. Ensure you understand all the terms and conditions of the lease and that you can meet the monthly payments and any others.
Pros and cons of leasing a car
Leasing a car has pros and cons, and it’s essential to consider both before deciding whether leasing is the right option. Here are some of the main pros and cons of leasing a car:
- Lower monthly payments: When you lease a car, you’re only paying for the vehicle’s depreciation during the lease term, which can lead to lower monthly payments compared to financing or buying a car outright.
- Access to newer cars: Since lease terms are typically shorter than loan terms, you can upgrade to a new car more frequently, which means you’ll have access to newer features and technology.
- Lower repair costs: Since lease terms are typically shorter than the manufacturer’s warranty, the warranty often covers repairs, which can help you save money on repair costs.
- No need to sell the car: At the end of the lease term, you simply return the car to the leasing company, so you don’t have to worry about selling the car or dealing with trade-ins.
- Mileage restrictions: Leasing contracts often have mileage restrictions, which means you’ll have to pay additional fees if you exceed the allotted mileage. This can be a problem if you have a long commute or like to take road trips.
- No equity: When you lease a car, you’re essentially renting the car, which means you don’t build any equity in the vehicle. This can be a disadvantage if you plan to keep the car for a long time.
- Additional fees: Lease contracts often include additional fees like a security deposit, acquisition fee, and disposition fee, which can add up and make the overall cost of leasing higher than financing or buying a car.
- Wear and tear: Lease contracts typically require you to return the car in good condition, which means you’ll have to pay for any damage or excessive wear and tear. If you have kids or pets or are rough on your cars, this can be a problem.
Overall, leasing a car can be a good option for people who want lower monthly payments and access to newer cars. Still, it’s important to consider the potential downsides, like mileage restrictions, additional fees, and lack of equity, before deciding.
Alternatives to a car lease
There are several alternatives to a car lease, including:
- Buying a new or used car: If you have the funds available, you can purchase a new or used car outright. This gives you ownership of the vehicle, and you won’t have to worry about mileage restrictions or penalties for wear and tear.
- Financing a car: If you don’t have the funds to purchase a car outright, you can finance it through a loan. You’ll make monthly payments and own the car once the loan is paid off.
- Car sharing: Car sharing services like Zipcar, Car2Go, and Turo allow you to rent a car by the hour or day. This is a good option if you only need a car occasionally and don’t want the responsibility of owning one.
- Public transportation: Depending on where you live, public transportation, like buses, subways, and trains, may be a convenient and affordable option for getting around.
- Biking or walking: Biking or walking may be a practical alternative to driving if you live in a city or town where everything is relatively close together.
- Carpooling: Sharing a ride with others going in the same direction can help reduce the cost of transportation and is better for the environment.
- Ride-sharing services: Uber and Lyft are examples of ride-sharing services that allow you to request a ride from a driver using a mobile app. This is a good option if you need a ride on short notice or don’t have access to a car.
Leasing a car can improve your credit score if you make all your payments on time and in full. Timely payments are among the most important factors in determining your credit score. By consistently making your lease payments on time, you can demonstrate to lenders that you are a responsible borrower, which can improve your creditworthiness.
However, it’s important to note that a car lease can also negatively impact your credit score if you miss payments or default on the lease agreement. Late payments or defaulting on a lease can result in negative marks on your credit report, which can lower your credit score and make it harder to qualify for loans or credit in the future.
Whether it is cheaper to lease or buy a car using a personal loan depends on several factors, like the cost of the car, the interest rate on the loan, the length of the loan, and the lease terms.
In general, leasing a car may have lower monthly payments than financing a car with a personal loan, but you won’t own the car at the end of the lease term. If you finance a car with a personal loan, you’ll own the car once you’ve paid off the loan.
If you plan to keep the car for a long time or drive it a lot, financing the car with a personal loan may be more cost-effective in the long run. Leasing a car typically comes with mileage restrictions and fees for excess wear and tear, which can add up quickly if you drive a lot.
On the other hand, leasing a car may be more cost-effective if you prefer to drive a new car every few years or want lower monthly payments with the option to upgrade to a newer model at the end of the lease term.
There are several ways you can lower your car lease payment, including:
- Negotiate the price: Just like when buying a car, you can negotiate the lease price with the dealer. You can also research the car’s residual value and negotiate the purchase price of the car to get a lower lease payment.
- Increase the down payment: A larger down payment can help lower your monthly lease payments. Consider making a larger upfront payment to reduce the amount you’ll need to pay each month.
- Extend the lease term: A longer lease term can lower your monthly payments, but keep in mind that it will increase the overall cost of the lease.
- Choose a different model: Consider leasing a different model with a lower purchase price or higher residual value. This can also help lower your monthly lease payments.
- Opt for a higher mileage allowance: If you’re concerned about mileage limits, you can opt for a higher mileage allowance upfront, which can lower your monthly payments. However, keep in mind that going over the mileage limit can result in additional fees at the end of the lease.
- Consider a different leasing company: Different leasing companies offer different lease terms and rates. Shop around and compare offers from different leasing companies to find the best deal.