If you’re shopping for a new car on a budget, leasing can be a good option to consider. When you lease a vehicle, you make monthly payments to essentially “rent” the vehicle for a certain number of years. When the lease period is up, you give the car back.
However, you have to qualify for a lease before you’re allowed to drive off the lot in a brand-new car. If you have poor credit, it can make it more difficult to get a lease. Your credit can also impact the terms of your lease, like your interest rate or the minimum down payment you’re required to make.
It’s still possible to get a lease if you have bad credit. But before you head to the dealership, it’s important to know how your credit score can affect your lease options and what obstacles you might run into.
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What is the Minimum Credit Score for a Lease?
There’s no minimum credit score needed to get approved for a lease. Every lender has its own credit score requirements. If you’re thinking about a lease but don’t have great credit, consider calling a few dealerships in the area to learn more about their credit requirements.
In general, most car dealerships or lease providers favor drivers who have “good” credit, which is a score of 670 above. Having a good credit score shows dealerships that you’re a responsible borrower who will continue making the payments until the lease period ends.
Why Is It Harder to Lease a Car than Buy a Car with Bad Credit?
It’s usually more difficult to lease a car with bad credit because it’s riskier for the lender. Drivers who lease a vehicle pay for the car’s expected depreciation, in addition to taxes and other fees.
Wear and tear, damage, and extra miles all contribute to the rate of depreciation, which means the car’s value could be significantly lower by the time you return it to the leasing agency. It’s in their best interest to be pickier about who they let lease a vehicle.
When you purchase a new or new-to-you vehicle, the risk of depreciation is yours. Because you own the car, any lost value is your problem. That means less risk for the dealer when they hand over the keys.
For this reason, dealerships might be more willing to approve your application if you want to buy a car with poor credit. With a loan, you’re only responsible for making the payments. You don’t have to keep the car in excellent condition or return it after any period of time.
Things to Consider When Leasing a Car with Bad Credit
While it’s possible to get a lease with bad credit, you could run into some difficulties. Here are a few things to consider when you lease a car with poor credit.
Prepare for High Costs
It’s no secret that having bad credit makes it more expensive to lease a vehicle. You will probably pay a higher interest rate, and you might also be required to make a bigger down payment and security deposit.
These expenses come in addition to standard taxes and fees. Before you lease, factor in all these expenses and consider your budget. Make sure you can afford to pay the higher cost plus the other expenses that come with having a vehicle.
Be Aware of In-House Financing
Many dealerships offer in-house financing through a partner lender, which often has more flexible requirements for borrowers with bad credit.
While these dealerships are more likely to approve your application, they typically charge exorbitant interest rates and have other hidden fees. You should only use this option as a last resort if you don’t have time to improve your credit score before leasing a car.
Expect Restrictions
Your options for leasing a vehicle can be limited when you have bad credit. Depending on your score, you might find that some dealers will not work with you. In addition, you might only be able to lease vehicles within a certain price range.
Also, be aware that leasing in general has restrictions, even if you have good credit. For example, leases have a maximum mileage limit. If you exceed the mileage, you pay a fee, which can make the overall cost of the lease more expensive.
What Are My Alternatives to Leasing a Car with Bad Credit?
If you’re on the fence about leasing with bad credit, consider these alternatives:
Get a Lease Transfer
If your credit score is making it hard to get approved for a lease, consider taking over someone else’s. Lease swaps or auto lease transfers let you take over someone else’s lease and make the remaining payments through the end of the contract. You can get the lease from someone you know or use a website to find drivers looking to transfer their leases to someone else.
However, you still need to get your credit approved if you pursue this option. In most cases, your credit score must be similar to that of the original renter to qualify.
Buy a Used Car
If you have poor credit, it may be easier to qualify for an auto loan than a lease. You might not get the latest model with all the bells and whistles, but buying a used car and taking out a loan can be a better option financially.
Plus, you’ll build equity in the vehicle and will eventually own it when the loan is paid off. There are no mileage restrictions and you don’t have to worry about keeping the car in excellent condition, as you do with a lease.
Wait and Work on Your Credit
Leasing might not be the best option for you right now, and that’s OK. If you can wait to get a car, consider working on improving your credit and revisiting your lease options later.
Not only can good credit help you qualify for a lease, but you’ll also get more favorable lease terms, like a lower interest rate. Here are some tips you can use to improve your score:
- Pay your bills on time
- Stay below your credit limit
- Pay off your credit card balance in full each month
- Only apply for loans you actually need
Should I Lease a Car with Bad Credit?
If you have poor credit, leasing a car will probably be more difficult. However, that doesn’t necessarily mean it’s a bad option. You should carefully consider your financial situation and determine whether it makes sense to lease a car with poor credit.
If you can wait to get a car, it’s a good idea to raise your score before leasing. You’ll pay less money overall and it could give you more options.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
Source: www.caranddriver.com