When you lease a car, you are essentially renting it from the dealer for a set amount of time, with an option to purchase the car at the end of your agreement. Determining whether you should lease or buy a car can depend on many factors, but ultimately it comes down to your driving habits and personal preference. Leasing often requires a credit score of at least 670 according to Experian, putting you in the “Good” range or better.
If your credit score isn’t quite up to par because of negative credit history or because you simply haven’t established good credit yet, don’t worry. There are ways to lease a car with bad credit, and understanding leasing requirements as well as more about leasing in general will help you get there.
Leasing Credit Requirements
Over the years it has become a little easier for car buyers with bad credit to lease a car, although it is still challenging. These requirements are different from typical auto loan requirements. Lenders typically like to see “good” or “excellent” credit for lessees, which would be 670 and up. Keep in mind that a lender at a dealership will likely use your automotive enhanced credit score, so it may be a bit different than what you’ve seen. Having a score lower than 670 does not mean you can’t lease – it just means you may have to make some adjustments.
Leasing Vehicle Selection – With a lower credit score you may have a more limited vehicle selection when leasing. It’s always good to head to the dealer with a couple options in mind, or just a general idea of the type of vehicle you want just in case your #1 doesn’t pan out.
Cosigner on a Lease – Having a cosigner on a bad credit car lease will almost always be a requirement, although it can vary from lender to lender.
Lease Down Payment – Down payments are often not required on a lease, or they are very small in comparison to a traditional auto loan. However, having a lease down payment can help compensate for bad credit in some cases because it will lower your monthly payments and make your lease more affordable, therefore reducing the risk to the lender.
According to a study from Experian, in the first three months of 2018 the average credit score in new car leases was 724, increasing two years straight.
Why are Leasing Requirements More Strict?
Leasing credit requirements are more strict than if you are financing a car. This is because of the nature of car leases. All lending decisions are based on risk. “Risk” of course can be defined in many ways, and each lender has their own way of measuring it, but the concept still stands. In a lease you get a new vehicle – this increases the risk of the loan because the car’s value is much higher.
When you lease a car your monthly payments go towards the car’s depreciation. You never really own the car at all, basically you’re borrowing it for a monthly fee. By paying down the depreciation on the vehicle, lenders can still be confident they’ll make a profit when selling it slightly used, off-lease.
Bad Credit Car Lease
If your credit score is below about 600, you’ll need a subprime lease. “Subprime” is what lenders use to describe bad credit. This is also often the case for someone with no credit or a very short credit history. Some of the ways to offset bad credit when leasing that we discussed earlier, such as a down payment or cosigner, may be an option. However, you’ll have to discuss that directly with the dealership or lender to be sure.
What happens if your heart is set on a lease but you simply don’t have the credit to get it done? One option is to take some time and make a true effort to raise your credit score. This can take a while, so you may need to find an alternative for a car in the meantime. Another option you could explore is a lease takeover. In a lease takeover, you assume the lease of someone else and take on their payments.