The decision to buy or lease a vehicle is an important one. There are important things to think about when you’re trying to decide, such as how long you want to own the car, how much you drive and what you can afford.
However, leasing isn’t necessarily open to everyone. If you’ve got damaged or no credit, it may be very difficult for you to get a lease at all, let alone one that is cost-effective.
What credit score you need to lease a car is highly dependent on a number of other factors like down payment and type of vehicle. However, if your credit score doesn’t meet the minimum, you may not be able to lease. Let’s take a closer look.
What is a lease?
You can think of a lease as a long-term rental of a vehicle. It depends on the vehicle, but generally, you’ll visit a dealership, make a down payment, then pay monthly for the right to use the vehicle.
You don’t own it and you have to follow certain rules as you drive. For example, you are not able to make any drastic changes to the vehicle — new bumpers or a scoop, for example — and the dealer limits the number of miles you can drive. At the end of the term you can choose to buy the car out from the lease or return it.
Understanding whether a lease is right for you comes down to your personal preference and financial situation. If you purchase a car outright, whether you have financed it or not, you own an asset.
You can continue driving it and you’ll continue owning the car after your payments are complete. Additionally, you can do anything you want to the car. At the end of a lease term, you either have to buy the car or return it.
The dealer will inspect it and may charge you fees if the car has damage beyond normal use. The benefit of a lease is that you can get a new car more quickly and can end up with a great credit score and report if you pay on time.
So what score do I need?
The typical minimum score for a lease agreement with a reputable dealer is 620. Scores between 620-679 are considered near prime by most dealers and 680-739 are prime.
Over 740 and you’re golden. If you’re in the higher tiers, you’ll most likely be approved, though on the lower end you may incur a higher interest rate to offset the risk. If you’re between 620-679, you can expect to pay a much higher rate on your lease agreement.
It’s important to note that not all lenders or dealers are created equal as far as the score that they require. A luxury vehicle dealer will have a much higher threshold than will a Honda or Toyota dealer, for example.
Additionally, there are third-party leasing companies that purport to offer leasing options to those who can’t qualify otherwise. Be very cautious with these companies.
If you are able to get a lease, you can do so through a name brand captive auto company. A third-party leasing operation is simply adding a layer of profit for someone else, making your payment go up.
I’m on the lower end of that score…what do I do?
Leasing may not be the right move for you. Remember, cars aren’t like homes in the sense that cars will depreciate in value.
Moreover, leases are better for consumers who really need or want a new car every two or three years. If you’re simply looking to get to and from work or don’t do a whole lot of driving, a lease may not be for you (in other words: is definitely not for you).
There are a few alternatives:
- Consider a used vehicle — a lightly used vehicle will still have cheaper payments and will be an asset that you own at the end of your repayment term. Yes, you’ll have to pay to repair it, but this will be true of the leased vehicle as well, and it may end up being cheaper.
- Make on-time payments — if you’re already financing a car, make sure your payments are on time. On-time payment is the single most important factor in your credit report and score. If you can’t lease a vehicle this time around, you may be able to do so if your score improves.
- Limit applications – Seems silly, but multiple inquiries to your report and score will cause your score to go down. Limit your applications to only the time you’re actually planning on applying for credit.
The minimum score for a lease is generally 620. However, think long and hard about acquiring a lease if your score is low or on the lower end of the spectrum. Other options for purchasing a vehicle may be better for your specific situation.