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4 min read. Published on October 11, 2022.
Written by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ways and pitfalls of taking out loans to buy a car.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to control their finances through providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.
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For many drivers, provides an affordable method of getting in the driving seat of the latest car. Leases offer lower monthly payments , and also eliminates several of the other expenses that come with ownership of a car — including repairs, which the dealer generally covers. But to take advantage of the lower monthly payments that come with a lease, you have to qualify. The process of leasing a car for bad credit can be more challenging. What credit score do you need to have to be able to lease an automobile? When you’re looking in the process of leasing a car, your credit score is an important aspect of the equation. Dealers treat customers with good credit scores with better rates of interest — and when you have a low credit score, they may not lease to you at all. The credit score required for leasing a car varies from dealership to dealership. the prime score ranges from 661 to 780. Prime scores comprise 65 percent of the total financing, as per an Experian report. Scores lower than that, which range between 601 and 660, are considered to be non-prime. scores between 501 and 600 are considered subprime. Less than 17 percent of financing is subprime. The higher you score on your credit, the more favorable the lease deal you be offered. However, you are able to be assured of a great leasing deal with a credit score in the 670 – 739 range. This is because lessors also consider your current income, employment history and your current credit obligations before granting you a lease. The median credit score for lease applicants in 2022’s second quarter was 736 according to Experian. Even though a low score will not hinder your from leasing, it might be required to provide a larger down payment or pay more monthly on a lease. Drawbacks to leasing a car that have bad credit Taking steps to will help you overall However, you may nevertheless lease a car prior to repairing it — just be aware of these possible risks. A high cost credit score could mean you’ll have to work harder to be eligible for a . For instance, the dealership might require an . The lease agreement could also have a higher interest rate also known as a money factor or lease in lease terms. This could increase the price of your monthly lease payment above what you can manage. No equity When you take possession of no equity at the lease’s end. This means that you won’t have any exchange or financial worth to put towards the purchase or a new lease. With a higher monthly payment, you may not be able to save enough to pay for a new lease. Ways to improve your chance of lease approval If you’re thinking of leasing a vehicle that has bad credit, there are some things you could do to increase the likelihood of approval. Pay a substantial down payment to show your prospective lender that you are committed to paying on your lease, you should make sure you pay higher than your minimum amount down. This is known as capitalized cost reduction. The more cash you can put in a down payment, the lower your monthly payment will be. You can get a loan cosigner One way to gain approval is through . Cosigners provide the security of the lessor. The cosigner is responsible for the lease and their credit will be affected if you do not pay. If you fail to pay lease payments the cosigner is accountable for the failure. If this is your preferred route ensure that you select a trusted family member or a friend with a stronger credit history than you. Make an effort to reduce your debt-to income ratio. Lowering your debt-to income ratio is also a red flag for leasing companies. The debt-to-income ratio, also known as DTI is the sum of your monthly payments multiplied by your monthly income. As someone with bad credit, you’ll need to lower this number by paying off debts, refinancing to lower rates or by raising your earnings. You might also consider an . They let you combine several debts into one payment, making them more manageable to manage. You can utilize a credit card to determine where you currently stand. Explore the market when searching for the best car lease deal, look through a variety of dealerships and leasing companies to find out which offer the most favorable deal for customers with bad credit. Since each dealership assesses lease deals differently, it is possible you will get a more favorable lease offer than you expect — and possibly at a less. It is also possible to negotiate the terms of your lease, though you may not have the leverage if you are a person with bad credit. Think about negotiating the car’s buyout price, which is the price you would pay to buy the car at the end of the lease. This price can’t be negotiated after the lease ends and you should discuss it in advance in the event that you believe you might like to purchase the vehicle. It is also possible to negotiate the vehicle’s annual mileage allowance if you are aware that you will likely be driving for a long time. Another option to lease a car with bad credit If you cannot find a lease or lease that has favorable terms, a lease transfer could be an alternative. Companies such as SwapALease and LeaseTrader specialize in matching people who want to exit a lease with people who are looking to lease. While lease takeovers still require the submission of a credit report to be eligible but the terms can be more favorable and without the payment of a down. Another option is . Some dealerships do not offer used cars for lease So you might have to shop around to find a dealership in your area which offers this type of service. If you do, note all the terms and the amount you’ll have to pay for the lease. It is possible to get an even better deal by purchasing an older car. There are also “lease here or pay here” dealers who provide on-site financing for cars they lease. The drawback is that leases typically come with a more expensive price tag as well as higher monthly installments. In addition the lease payment terms are generally far from ideal–you may even be accountable for the cost of any required maintenance for the car. The selection of cars available at lease here, pay here dealers may be older or more limited. The bottom line Although it is possible to lease a car even with bad credit, you may not receive an offer that is competitive. This could mean a larger down payment, more frequent monthly payments or leasing a car that isn’t your first choice. If you have time, taking steps to boost your credit score could be the key to an improved lease contract in the future. Explore options and modify the lease terms, no matter your credit score, in order to obtain the best deal possible.
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Writen by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ins and outs of securely borrowing money to purchase the car they want.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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