Leasing a Car With Bad Credit | Build

Leasing a Car With Bad Credit

August 1, 2022

A credit score can impact lease terms and the rates you are offered

As a prospective car buyer, you may have considered leasing a vehicle rather than outright purchasing it. Choosing to lease a vehicle can come with lower monthly payments, potentially fewer maintenance costs, and lower upfront fees among better benefits. However, depending on your credit score and financial situation, you may not be able to find a deal worth the money if you are trying to lease a vehicle with bad credit.

Qualifying for a car lease is the same process as qualifying for an auto loan, meaning a lower credit score can impact your odds of being approved and the terms you are offered on the lease. Read on to learn the full extent of how your credit score may impact the deals you are offered. 

What is a car lease?

Car leasing is a popular type of auto financing that people may choose as opposed to car buying. While the basic structure of a car lease is the same to that of a car purchase, you are essentially renting the vehicle from the dealership. You will still be responsible for monthly payments, but at the end of your release you will either return the vehicle or buy out the lease to keep the vehicle.

Most car lease terms will last anywhere between two to four years, with the car-loan financing being handled by a bank or third-party lender with the dealership. It is possible to lease both a new or used car. However, a car lease contract has a few different components than a standard auto loan.  

Terms of a car lease contract

While a car lease is similar to a standard car purchase loan in regard to a down payment, monthly payments, and interest rates, there are a few additional common factors:

 

  •       Down payment: As mentioned, you will be required to put down a down payment on a leased vehicle, with most not exceeding $3,000 on average. This, along with any acquisition fees, will be included with the amount due at signing. 
  •       Monthly payment: This is the agreed upon amount that you will pay each month for the right to drive the vehicle. Monthly payments will include depreciation, sales tax, any interest, as well as other factors.
  •       Excessive use fee: One difference between car leasing and car purchasing is that, with the former, dealerships only allow you to drive your vehicle a certain number of miles each year before being charged an added fee per mile. Identify this number in your contract to be sure it isn’t unreasonably low.
  •       Disposition fee: This is the amount you will be required to pay at the end of the lease if you do not trade it in for another lease or buy the vehicle. It covers costs associated with the dealership’s efforts to resell the vehicle.
  •       Early termination fee: Should you decide leasing isn’t right for you, there will be a specified early termination fee that you will be required to pay. 
  •       Excessive wear and maintenance: Despite the fact you don’t own the vehicle, you are still responsible for ensuring no more than “normal” wear and tear (as stipulated by your contract) exists on the vehicle when you turn it in. Otherwise, you will be charged an added fee. 

 

As evident, a car lease contract has certain similarities to a standard auto loan but features many more fees and potentially hidden lease terms. 

What is the Minimum Credit Score Needed to Lease a Car?

The credit score to lease a car may be higher than you may initially have expected. According to data from recent years, the minimum credit score needed to lease a car credit is recommended to be at least 700. Having a score lower than 700 doesn’t mean you will be automatically denied for a car lease. In fact, you may be approved, but the issue lies in the fact that you will likely be offered unfavorable contract terms when leasing a car with bad credit.

How does credit score impact a car lease?

Many people believe that their credit score only affects whether or not they are approved for a car lease. Unfortunately, this couldn’t be further from the truth. It’s entirely possible to lease a vehicle with bad credit, but you will likely see impacts such as:

 

  1.     Above average interest rate
  2.     Higher down payment or upfront payments may be required 
  3.     Overall higher monthly payments

 

The purchase price and residual price of a vehicle (what it is currently worth vs. what it will be worth at the end of a lease) are not impacted by your credit score. To put it into perspective, however, say the amount you owe is $10,000 over three years. Your interest rate is applied to that $10,000. So, with a lower credit score resulting in a higher rate, you will end up paying more in interest. 

Can I Lease a vehicle with Bad Credit?

Yes, it is possible to lease a vehicle with bad credit, but it’s important to perform extra due diligence to ensure you are receiving a good deal. Take note of the following:

 

  •       Some dealerships may only allow used vehicles to be leased to those with credit scores that don’t meet their required minimums
  •       Read through your contract terms to ensure there are no hidden fees associated with you lease
  •       Review the interest rate you are being offered and compare it to the industry average
  •       Compare different lease offerings, rather than settling on the first offer
  •       Be prepared to pay a higher down payment and higher monthly costs

 

Overall, those with substandard credit may find it more beneficial to take some time to raise their credit score before leasing a card with bad credit. Doing this can allow you to receive more favorable contract terms in regard to your monthly payment, interest rate, and down payment. 

Strategies to improve your credit score

Assuming you’ve decided leasing a car is right for you, but your credit score isn’t where you want it to be, here are some quick tips for improving your credit score:

 

  •       Aim to pay your bills on-time and in-full
  •       Constantly review your credit balances to ensure there are no errors
  •       Become an authorized user on a family members card if you don’t yet have a credit history established
  •       Consider a secured credit card to begin building credit
  •       Sign up for credit reporting for rent and utility payments

 

If you believe leasing a vehicle is the best strategy for your personal and financial situation, start by raising your credit score today. 

Making the most of your financial situation

Regardless of whether you choose to lease or purchase a vehicle, ensuring your credit score is as high as possible should always be a priority. By taking key steps such as paying your bills on time, monitoring credit activity, and developing a budget, you can take a first step towards improving your finances. Once your credit score has improved, applying for a car lease will likely yield far better deal terms and begin to make more sense from a financial standpoint. 

 

What to do next?

The good news is, you CAN take control of your credit. We believe that everyone should have the opportunity to build their financial health. 

 

Sign up for a Build account today. With a Build credit builder loan, you can build credit and increase your savings.

 

How does a credit builder loan work? 

You make a small contribution to a bank account each month. 

Build then reports those deposits to the credit bureaus as credit-worthy payments, which builds your credit history and profile. 

Positive Payment History – making consistent payments over time –  is the largest driver of your credit score. 

Learn more about how it works or sign up today.