How to lease a car with bad credit?
Leasing a car may be an affordable option for you. It comes with lower monthly payments, and no other costs, such as repair costs, because the dealer will take care of them.
To make use of a car lease, you will have to get approved first and having bad credit can make this more challenging. Let’s go over the details of leasing a car and how you might increase your chances of approval.
What is leasing a car?
Leasing is essentially like renting a car out for a period with a limited number of miles. Usually, you can drive the car between 36 to 48 months. According to Experian, leasing a car is less popular than buying; only a quarter of new cars were leased in the last quarter of 2020.
Usually, dealerships and lenders will run credit checks when processing your application. You‘re more likely to receive a better deal if you have a high credit score. But there are also ways to increase your chances of approval even if you have a bad credit score.
After your lease term ends, you can return the car to the dealer or choose to buy it for a specific amount, as stated in the contract.
What credit score do you need to lease a car?
Your credit score can be a deciding factor when deciding to lease a car. Since dealers and lenders will run credit checks, you will have better chances of approval with a better credit score. Typically, good credit scores can get you better interest rates, while a low score may eliminate your chances of approval completely.
The requirement for credit scores will vary between dealers. You should aim to have a score of 661 to 780, according to Experian. Anything ranging between 601 and 660 is considered non-prime, while scores between 501 and 600 are deemed subprime.
With higher credit scores, you will receive more favorable leasing offers. But you may still be able to receive a good offer with a score ranging between 670 to 739. The reason is that dealers will look into your income, employment history and current debts. In 2022, the average credit score for people leasing a car was 736, as stated by Experian.
It’s not impossible to lease a car with no credit score or a low score, but you may have to place a larger down payment or make higher monthly payments.
Things to consider before leasing a car with bad credit
When you buy a car, its value declines over time. So, when you lease a car, the depreciation is on the lender, which is considered in the lease terms.
Similar to when you buy a car and are charged an interest rate, a lease rate is applied when you lease a vehicle. Your lease terms are based on your credit rating, the price of the car, and the car’s predicted value once the lease ends.
Cons of leasing a car with bad credit
You should aim to improve your credit score since this will have an overall benefit to you. But you may still be able to lease a car with bad credit. The drawbacks of this are highlighted below.
High cost
When you have a low credit score, dealers may ask you to make larger down payments. You will also likely receive a lease with a higher interest rate, which could increase the cost of your monthly repayment, making it unaffordable.
No car ownership
Since you won’t own the car, you will have no equity once your lease ends. So, you won’t be able to trade it in and use the money towards a new lease. Also, with higher monthly repayments, you may not be able to save enough to get a new lease.
How to get approved for a car lease with bad credit
- Placing a larger down payment may help.
- You can trade in another car to offset some upfront risks. Since you’re adding more money towards the lease, you may have a higher chance of approval.
- Reconsider your first choice of a car and buy a less expensive model.
- A family member with a good credit score can co-sign the lease.
- You can also take over someone else’s lease. With a lease transfer, you’re responsible for making any outstanding payments and agreeing to the original lease terms. You can find lease-transfer options on sites like Lease Trader or Swap a Lease. Remember that you’ll probably need a similar credit score to the original lease owner.
- You could consider pre-owned car leases. They may come with lower down payments or monthly payments. But you should be careful of “lease-here-pay-here” dealers that focus on people with bad credit. The dealers usually finance these rather than outside lenders, often requiring a large down payment, unfavorable terms, and higher monthly or biweekly payments. Typically, there is a smaller selection of newer models, and you may be responsible for repairs. You should read the contracts carefully and consider this option a last resort.
While leasing a car with bad credit is not impossible, you may have a harder time finding a suitable deal. You’ll likely face a larger down payment and higher monthly payments with an unfavorable lease rate if approved. Some alternatives may save you money, like getting a co-signer, using a lease transfer, or leasing a used car.
You can also wait until your credit score increases to find better deals. But if it can’t wait, consider buying an older model rather than leasing a newer, more expensive one.
Sources:
Can You Lease a Car with Bad Credit?
How To Lease A Car With Bad Credit | Bankrate