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Leasing a car with bad credit 

vehicle leasing for bad credit

Leasing a car with bad credit may be possible for consumers who research their options and save up for their monthly payments and security deposit. It may also be easier for bad credit consumers to lease a car if they include a co-signer on their lease. If you are in the market for a new vehicle, you may be debating between purchasing a vehicle or obtaining a lease. Here, you will learn about vehicle leasing for bad credit, what your options are, and even how you can improve your credit along the way! 

Car Loan vs. Car Lease

Auto loans are installment loans meant for the explicit purpose of purchasing a vehicle. Auto loan lenders are typically listed as lienholders on a vehicle’s title while the official owner pays off their loan. Borrowers gain complete legal ownership over their vehicle once they ultimately pay off their auto loan.

A car lease, on the other hand, is when a driver makes a monthly payment in order to have access to a vehicle. Approximately 20% of new cars in the United States are leased.1 While the driver can typically treat the vehicle as if it were their own when they have a car lease, they do not officially own the vehicle and may be required to abide by certain restrictions. For example, people may find that their lease agreement has restrictions as to how many miles they may drive within a given leasing term. 

Should You Buy or Lease a Car When You Have Bad Credit?

Is leasing or buying a car better when you have bad credit? Usually, people with bad credit scores may be better off leasing a vehicle simply because it is more difficult for these types of borrowers to find loan approval in general. Making car lease payments on time will show up on your credit reports and may indicate to future lenders that you are a financially responsible borrower, which can help you increase your credit score for future loans. The average car lease payment in the United States is about $487 per month.2 

However, if you are set on purchasing a vehicle with a loan, you can try the following to help increase your chances of approval: 

  • Get a co-signer
  • Offer to make a larger down payment or security deposit

What Credit Score Is Needed to Lease a Car?

Can you lease a car with no credit or a low credit score? Leasing companies can vary when it comes to the type of borrowers they work with. For example, a leasing company that works with luxury vehicles may have stricter credit requirements than a company that works with more traditional everyday vehicles. 

Credit scores range between a perfect 850 and a beginning score of 300. People with scores between 800 – 850 are said to have exceptional credit. People with a good credit rating between 740 – 670 are often referred to as prime borrowers. These kinds of borrowers may enjoy benefits like: 

  • Access to a wider variety of financial products and services. Prime borrowers make up more than 65% of financing loan and lease transactions on both new and used vehicles.
  • Better chance of receiving lower interest rates. 
  • Higher likelihood of receiving increased loan amounts.  

Lastly, people with scores between 580 – 300 are said to have fair/poor credit. This group of borrowers are often referred to as subprime. Subprime borrowers make up about 17% of loan and lease transactions on both used and new vehicles. 

Whether you plan on buying or leasing a vehicle, it’s a good idea to check your credit score before you start to look around. Knowing where your credit score falls can help guide you toward the right kind of vehicle, so you don’t waste your time looking at options that won’t work for you financially. 

Pros and Cons of Car Leases With Bad Credit

Before getting into a car lease or any other kind of financial endeavor, it is important to think about the potential advantages and disadvantages. Below are some of the pros and cons to consider regarding leasing a car with bad credit. 

PRO: Lower Monthly Payments

According to a study done by the credit bureau Experian, the average monthly payment on a car lease for subprime borrowers is $559 a month, while the average monthly lease payment for prime borrowers is $549. Auto loans usually require higher monthly payments, with the average monthly payment for subprime borrowers being $692 while the average monthly payment for prime borrowers is $673. So, whether you have good or bad credit, you are more likely to save money on a monthly basis with a car lease over a loan. 

CON: High-Cost Overall: The Money Factor 

Since car leases are generally easier to come by, leasing companies tend to charge a higher interest rate than car lending companies; this trend is referred to as the “money factor.” While the average car loan is quite high, $38,802 for subprime and $41,6969 for prime borrowers, borrowers who have car leases may still pay more overall because of the higher rates. 

CON: No Equity Gained

When people purchase a vehicle and take care of it, there’s a chance they may end up with positive equity after they pay off their vehicle loan. Positive equity in a car means that the current market value of the vehicle is worth more than the original balance of the borrower’s auto loan. Since people who lease their vehicle are not purchasing it outright, they have nothing to gain if the vehicle has positive equity at the end of their lease contract terms. Instead, the original dealership benefits from people taking good care of their leased cars.

Ways To Improve Bad Credit for an Auto Loan

While it can be possible to purchase a car with bad credit, you’ll have a much easier time if you work on improving your credit score before applying. The sooner you start establishing positive financial habits, the faster you may see an increase in your credit score! 

Make Payments on Time

Payment history is the most important financial habit to keep in order when trying to raise your credit score. Making up 35% of your total score, payment history has the potential to affect your credit score more than any other financial category. 

Your payment history refers to how timely you are with making payments on debts like: 

  • Bills 
  • Loans
  • Credit cards
  • Rent or mortgages 

If you have trouble remembering to make your payments on time, try signing up for automatic payments. That way, your bills will be paid each month automatically on their due date! 

Lower Your Debt-to-Income Ratio

Your debt-to-income ratio refers to the amount of money you earn compared to the amount of debts you owe. While it is nearly impossible to keep your debt-to-income ratio at 0%, financial institutions generally like to see borrowers with a ratio of no more than 30%. 

Avoid Applying for Unnecessary Credit

Every time you apply for a new line of credit, your lender will request a hard credit pull. A hard credit report is a consumer’s official credit statement as reported on by one of the three major credit bureaus. Credit bureaus keep track of hard credit pulls, and they have the ability to affect your credit score. For example, a single hard credit pull can lower your credit score by up to five points. To avoid unnecessary damage to your credit score, try to only apply for new lines of credit when you really need it. 

Alternatives To Leasing a Car 

If you have extremely poor credit, a traditional car lease may seem like it’s out of the question for you. Fortunately, there are other avenues to explore for people with a lower credit score who need access to a car. You may consider options like: 

  • Lease transfers
  • Carpooling with people you know 
  • Seeking advice from a car dealers’ financing department 

Lease Transfer

Lease transfers allow borrowers to obtain a lease that once belonged to someone else. When you acquire a lease through a transfer, you are not responsible for paying off the total original balance, just whatever is left over from the previous borrower. While this means you won’t be getting a brand-new car with your lease, it can help you save hundreds or even thousands of dollars. 

Car-sharing Services

Carpooling is an environmentally friendly habit that can also help you save money on commuting, even if you don’t have a car. With carpooling, several people make a schedule and rotate driving responsibilities, so everybody doesn’t have to take their own car everywhere they go. If you don’t have a car and can’t participate in the driving rotation, you can offer to pay for gas or buy the driver lunch as a thank-you! 

Work With Your Car Dealership’s Finance Department

Sometimes car dealers have a special financing department that specializes in working with people who have lower credit scores. These departments may be able to help you out with a discount on your down payment, flexibility on your monthly payments, or they may be able to help connect you to another borrower who is willing to do a lease transfer. 

Key Considerations for Leasing a Car with Bad Credit: Beyond the Basics

CategoryDetails
Alternative Financing Options – Buy-here-pay-here dealerships
– Peer-to-peer lending platforms
– Credit union loans
Credit Improvement Programs – Secured credit cards to build credit
– Credit builder loans
– Online credit education courses
Lease Co-signing– Risks and benefits of having a co-signer
– Eligibility criteria for co-signers
– Impact on the co-signer’s credit
Insurance Considerations – Types of insurance required for leased vehicles
– Cost comparison of insurance for leased vs. purchased cars- Tips for finding affordable insurance with bad credit
Vehicle Choice – List of car models with the best lease terms for bad credit- Comparison of lease costs by vehicle type- Impact of car choice on insurance and lease approval
Negotiation Strategies How to negotiate lease terms<br>- Understanding lease contract fine print<br>- Tips for end-of-lease negotiations
Early Termination Consequences of early lease termination<br>- Options for lease buyout<br>- Strategies to avoid penalties
Disclaimer: The information provided in this chart is for general informational purposes only and is not intended as financial advice. Consumers should conduct their own research and consider consulting with a financial advisor to understand the full implications of leasing a car with bad credit. The details in the chart may vary based on individual circumstances, market changes, and regional differences. This chart does not guarantee lease approval or favorable terms and should be used as a guide to inform further investigation into leasing options.

FAQ: Leasing a Car with Bad Credit 

What is the minimum credit score needed to qualify for an auto lease?

Typically, the minimum credit score required for an auto lease varies by leasing company, but a score of 620 or above is often preferred. However, some lenders may allow lower scores with certain conditions.

How does my credit history affect car financing options when leasing?

A strong credit history usually results in better car financing terms, including lower interest rates and better lease factors. Conversely, a weaker credit history may lead to higher costs and more stringent lease terms.

Can I still lease a car with average credit scores?

Yes, you can lease a car with an average credit score. While you might not get the most favorable lease factor, many dealerships have options for those with mid-range scores.

What lease factor can I expect with bad credit?

The lease factor, similar to an interest rate on a loan, can be higher if you have bad credit. This is because lenders take on more risk and often charge more to mitigate this.

Is there a way to lease a car without a credit history check?

Most reputable auto lease agreements will require a credit history check. However, some dealers may offer leasing options with proof of income or a significant down payment.

How can I improve my chances of getting an auto lease with a low credit score?

To improve your chances, consider a larger down payment, a co-signer with a better credit score, or look for dealerships that specialize in financing for those with lower credit scores.

What’s the difference between an auto lease and other car financing options for someone with bad credit?

An auto lease often requires lower monthly payments compared to buying a car with a loan, which can be beneficial for someone with bad credit. However, the lease factor may be higher than interest rates offered to those with better credit.

How can I find out my credit score before applying for a lease?

You can request a free copy of your credit report from the major credit bureaus once a year to find out your credit score, which will give you an idea of where you stand before applying for an auto lease.

Will making timely payments on an auto lease improve my credit score?

Yes, consistently making timely payments on an auto lease can help improve credit scores over time, as it demonstrates financial responsibility and creditworthiness.

What should I do if I can’t lease a car with bad credit?

If denied for an auto lease, you should review your credit report for any errors, look into increasing your down payment, or consider a co-signer. Additionally, some companies offer lease-to-own programs that might be more accessible with a lower credit score.

A Word From CreditNinja on Leasing a Car With Bad Credit

While it may seem impossible to find approval for any type of funding when you have bad credit, this isn’t always the case! When it comes to leasing cars, borrowers with poor credit have access to plenty of financial options that can help them afford a vehicle. 

Instead of leases or auto loans, you may also consider a personal loan from a direct lender. CreditNinja specializes in bad credit loans and can come with great benefits like: 

  • Convenient monthly payments 
  • Friendly customer service 
  • Flexible repayment terms 
  • Bad credit scores OK

Check out the CreditNinja easy online application to see how much cash you could get today! 

References:

  1. Which Car Brands Are Most Often Leased | Cartelligent
  2. How Much Does It Cost to Lease a Car? | Car and Driver
  3. Leasing vs. Buying a New Car | Consumer Reports
  4. Vehicle Leasing | GSA
  5. State of the Automotive Finance Market Q2 2022 | Experian
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