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If you have bad credit, getting good lease terms on a vehicle can be tough. Dealers want customers that have good credit.
This article will walk you through the kind of credit score you need to get a good deal. Even better, we’ll show you how to improve your credit so you can lease the car of your dreams.
What Kind of Credit Score Do You Need to Lease a Car?
The credit history requirements to lease a car can vary depending on which leasing company you choose to work with. For an idea of what lenders are approving; in the third quarter of 2020, the average credit score to lease a car was 733.
Each lender has specific underwriting requirements for lessees to meet and they’re not always public knowledge. To get the best possible rates and monthly payments for the car you want, your credit score should be in the “Good” to “Excellent” range, which is anywhere from 680 to 850.
However, your credit score isn’t the only thing lenders pay attention to.
Leasing companies also review your debt-to-income (DTI) ratio, length of credit history, and credit utilization. These factors help determine how much of a lease you can afford. Your car dealer may also consider any prior leases when qualifying you for vehicle leasing.
Your debt to income ratio shows your lender how much of a monthly payment you can afford, by taking your total monthly debt payments divided by your gross monthly income.
The ideal debt to income ratio is below 36%.
If your credit score or DTI falls outside of those ranges, that’s okay. You can still qualify for a lease through most lenders. You may need to shop around to find the lease terms that work best for you.
What’s the Minimum Credit Score to Lease a Car?
Technically, there’s no set minimum credit score to lease a car.
Dealerships have their own underwriting minimums that vary from company to company. Even though there’s no official minimum score, most vehicle leasing companies accept a score of 680 or higher.
The higher you boost your score, the better deal you’ll be able to get.
It’s not out of the question to get approved for a lease with bad credit, but it can be costly. To avoid the extra fees, and limitations, you can read up on How to Raise Your Credit Score by 200 Points.
What Will Happen If You Have a Credit Score Below 680?
We’ve all seen the luxury car commercial with a shiny new sedan whipping around the corner. Meanwhile, a silky voice promises lease terms like “only $199 per month for 36 months for well-qualified lessees.”
To get deals like that, the key is to have excellent credit.
But what about those of us with scores below 680?
Leasing a car with poor credit is challenging because you’ll have to make concessions that borrowers with good credit don’t have to make.
To compensate for an ugly credit score, auto leasing companies place restrictions like:
- Large down payment
- Higher monthly payments
- A limited selection of cars to lease
- Or even the inability to lease altogether
There are two ways to avoid those:
- Negotiate— talk your way into a better lease agreement and don’t be afraid to get up and walk away from the table.
- Transform your credit history to bring it up to the good credit range.
Negotiating your lease terms is a hit or miss. It depends on the car dealership and what their finance department is willing to take out of the capitalized cost.
Improving or rebuilding your credit score can take time, but the rewards can be worth the time and effort. No one with great credit got that way overnight. With discipline and patience, you can learn how to get an 800 credit score and take advantage of excellent lease agreements.
Higher Down Payment
Borrowers with a low credit score typically encounter leasing options requiring a large down payment to balance the risk of leasing to someone with a bad credit history.
Don’t think of it as a hard requirement.
Most lease terms are negotiable.
All of the fees including the down payment are part of the capitalized cost for a leased vehicle. If the fee falls within the capitalized cost, there’s a chance that the dealership will be willing to negotiate.
If you don’t have enough saved up for a hefty down payment, you could also negotiate for a higher monthly lease payment instead. Be sure to run the numbers within your budget to make sure it’s something you can afford.
The car dealer could also give a higher interest rate or money factor. If you’re not careful, this could push your monthly payment into an unaffordable range.
Inability to Lease
If your credit profile doesn’t meet the lender’s underwriting standards, they could decline the lease offer on specific models. This is especially true if it’s the newest car on the lot.
Don’t get discouraged.
You could still qualify for a different model at the same dealership. In this case, you won’t know until you try.
Once the dealership runs a credit check for the lease, they can tell you which models you qualify for even if it’s not the one you originally wanted.
There’s a possibility you could get denied the lease altogether.
If that happens, you might still be able to get a new car by getting a purchase loan instead. Vehicle loans typically have lower credit requirements than leases.
You might still drive away from the dealership with a new ride if you aren’t qualified to lease. You just have to find the option that works best for you.
Leasing a Used Car
Used cars can be leased too.
They even have a lower credit score approval range. In the third quarter of 2020, Experian reported the average credit score approved for a used vehicle lease was 665.
Getting a lease on a used car is easier from a credit perspective.
Still, you might want to come to the dealership prepared with a second or third car choice just in case.
Most dealerships will only approve poor credit for a limited selection of car models, so you might not get a lease offer on the car you came in for.
No one wants a bad credit car. Paying $900 a month to lease a 2015 car with 100,000 miles defeats the purpose of leasing. So the same rules apply here:
You get the best interest rate and lease payment by having the best possible credit score.
How Can You Improve Your Credit Before Applying?
You don’t have to have perfect credit to apply for an auto lease.
But the better your credit is, the better lease terms you’ll qualify for.
There are tons of ways to improve your credit before heading to the dealership. They might not be solutions that will change your score instantly, but they definitely work!
You can:
- Make on-time payments
- Pay down your credit cards
- Dispute errors on your credit report
- Avoid hard inquiries
- Get a credit builder loan
If your score is currently in the poor category, you might be wondering How Long Does It Take to Rebuild Credit?
It’s not a quick fix.
But the work you do to raise your score will allow you to take advantage of reasonable lease terms, special offers, or even rebates.
Always Make On-Time Payments
Your payment history makes up 35% of your credit profile.
It’s extremely important to ensure your payments are all made on time, every time. Even one late payment can have a significant impact on your credit score.
You don’t want to let those payments lapse once you get approved for the lease either. While you’re only “renting” the car, the lease company reports all your monthly payments to the credit bureaus.
When those payments are on time, it can have a great effect on your score and prove to future lenders that you’re a responsible borrower.
Missing payment could wreck your credit score and put you at risk to get declined for future lease agreements.
If missed payments get way out of hand, you could get an early termination. That comes with hefty fees and full repayment of the remaining amount on the lease.
Pay Down Credit Cards to 10% or Less of their Credit Limit
Reducing your credit card balances can jumpstart your credit score in a short amount of time.
Making bigger credit payments to tackle your balances reduces your credit utilization rate which lenders love to see.
An ideal credit utilization rate is 30% or lower. If you can get your credit card utilization to 10% or less, your credit score will go up even more. It shows lenders that you’re more than capable of handling additional financial responsibility.
Dispute Errors on Your Credit Report
Credit bureaus don’t always get it right. Sometimes the information that they receive from creditors can have errors like…
- Duplicate accounts
- Accounts reported under the wrong name
- Collections that haven’t automatically dropped off
- Incorrect information
You can dispute errors through each of the credit bureaus that reported them. The process is simple for most disputes and documentation could be requested to prove the error.
It could take several months for the issue to be resolved, but your credit score will improve once all issues are removed.
Avoid Applying for New Loans Before You Look for a Lease
If your goal is to improve your credit before applying for a car lease, you shouldn’t apply for new loans a few months before you plan to go to the dealership.
Lenders don’t like to see a bunch of new accounts and hard inquiries when they review your credit profile to qualify you for a lease.
To a car leasing company, your new loan applications or credit accounts can be a sign of financial issues on the horizon.
In this case, it’s important to figure out what to prioritize. The new car lease, or a new loan?
If having a new car is more important, then save the loan until after you drive into the sunset.
Get a Credit Builder Loan
Credit builder loans are a great tool to help you navigate building your credit profile. In most cases, building your credit takes a while.
With consistent on-time payments to a credit builder loan, the average customer saw their FICO score increase by at least 25 points within the first three months and up to 70 points in just 12 months.
It’s a game-changer when answering the question of How Long Does It Take to Build Credit?
If your credit needs work and your goal of leasing a car is at least 12 months away, the credit builder loan could be the right solution for you.
Credit Strong’s credit builder loan monthly payments start at only $15 per month and all of the payments made to the loan are reported to each of the major consumer credit bureaus.
You can find the pricing and plans for Credit Strong’s credit builder loans here.
The bottom line is, leasing a car with bad credit is possible. And you’re not stuck with whatever terms the lender approves you for. Negotiation and credit improvement strategies are your best bet for getting the ideal lease offer from the dealer.
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