Leasing a car seems like the perfect way to get into the vehicle of your dreams. Monthly lease payments will be a fraction of what you spend on buying the car outright, and you’ll spend less on maintenance. But there’s only one problem. Your credit score isn’t up to par.
Does this mean your chances of getting approved are slim to none? Not quite. Keep reading to learn more.
Why Credit Scores Matter
You don’t need perfect credit to get approved for a car lease. But the higher the credit scores, the greater the chances of getting approved. Why so? It’s all a matter of risk to the lessor.
The average credit score to lease a new car was 729, according to Experian for 2020. If your credit score is on the lower end of the spectrum, lenders perceive you as a credit risk. And the lessor wants to protect their financial interests.
What is a good credit score for leasing a car?
So, what credit score should you aim for before shopping for a car lease? Unfortunately, there’s no specific number, but anything below 680 may mean more hoops to jump through to get approved. And chances are you’ll have to bring more money to the table or get a much higher interest rate.
But if you have a minimum credit score of 680 and you have a steady source of income, you’ll be privy to the following benefits:
- Qualifying for more competitive lease offers. You may not receive the lowest advertised rate, but you won’t have to settle for subprime interest rates, either.
- Lower down payment. This means you can keep more of your hard-earned money in your pocket.
- Increased buyer power. The lessor will factor in the amount of the monthly payment when deciding if they’ll approve you for a lease. And the lower the interest rate, the lower the monthly payment. In turn, you may be able to afford a more expensive vehicle.
How to Improve Your Credit Score for a Car Lease
There are several ways to improve your credit score to increase your chances of getting approved for a car lease. Here are some tips:
- Pay your bills on time: Late payments can have a significant negative impact on your credit score. Set up automatic payments or reminders to ensure you pay your bills on time.
- Pay off outstanding debt: High levels of debt can also lower your credit score. Try to pay off as much debt as possible, starting with the debt that has the highest interest rate.
- Check your credit report for errors: Credit reports can sometimes contain errors, such as incorrect information about late payments or outstanding debt. Review your credit report and dispute any errors you find.
- Keep your credit utilization low: Credit utilization is the amount of credit you use compared to your credit limit. Using a high percentage of your available credit can lower your credit score. Try to keep your credit utilization below 30%.
- Don’t open too many new credit accounts at once: Each time you apply for credit, it can have a negative impact on your credit score. Avoid applying for too many new credit accounts at once.
- Use a secured credit card: If you have a limited credit history or a low credit score, you may be able to improve your score by using a secured credit card. A secured credit card requires a cash deposit, which serves as collateral in case you default on your payments. Using a secured credit card responsibly can help improve your credit score.
How to Find the Perfect Lease with Less than Perfect Credit
What if you want to lease a car and your credit scores are in the trenches? There’s hope, but you’ll have to do a bit of legwork to find the best offers out there that you qualify for.
See also: How to Lease a Car with Bad Credit
Don’t settle for the first offer that you’re approved for. Instead, visit several dealerships to explore your options. Some dealers offer in-house financing. So, they have more flexibility regarding who gets approved and who doesn’t.
And no need to worry about your credit scores taking a hit from too many lease applications. According to myFICO, all inquiries made in a 30-day window will be counted as a lone inquiry while you shop around as long as you select a lease by the end of this period.
Rectify Credit Report Errors
When was the last time you checked your credit reports for accuracy? According to the Federal Trade Commission, 1 in every five credit reports contain errors.
So, there’s a chance that erroneous information on your credit report is dragging your credit scores down. And having a poor credit score is standing between you and that lease approval. But by rectifying these errors, your credit score should improve.
To get started, grab a free copy of your report. If you notice errors, file disputes right away. But keep in mind that it could take a bit for your credit history to reflect any changes since the three major credit bureaus have 30 days to wrap up the investigation.
For more guidance on credit report disputes, check out this comprehensive guide.
Ready to Repair Your Credit?
Learn how to get help disputing errors on your credit report that could be hurting your credit score.
Show All Income
When applying for a car lease, be sure to include all sources of income on the application. Even if your credit scores aren’t that great, having a verifiable, steady source of income that’s enough to cover your living expenses, other debt obligations, and proposed lease payment can help.
It demonstrates to the leasing company that you should be able to handle the lease. It also helps if you bring hard copies of your proof of income to the dealership.
Get a Cosigner
By bringing someone on board with good credit, the lessor may approve the lease agreement. Even better, you may qualify for better rates because of the strength of the cosigner’s credit history.
But keep in mind that they’re sharing responsibility for the lease. So, they’ll be liable if you default on the agreement.
Keep Your Options Open
Be open to exploring other options if you don’t qualify for the vehicle you want. Remember, leases generally don’t exceed three years, so you won’t be stuck with the car forever. And you can always upgrade to a nicer ride when your credit score improves.
Bring More Money to the Table
Do you have a decent sum of cash on hand? Offer to make a larger down payment to secure the lease. But if your credit score is low due to a heavy debt load, it may be more sensible to settle for an inexpensive model. That way, you can pay down debt and lower your credit utilization ratio. This will also help improve your credit history.
Be Prepared to Make a Security Deposit
In addition to the down payment, the lessor may also need you to make a security deposit to assume the lease. And not having the funds available could be a deal-breaker. So, it’s best to save up before heading to the dealership to apply.
Speak to the Finance Manager
Still no luck? Try pleading your case to the finance manager. Most lease applications are processed electronically. But if the finance manager thinks you’re worth the risk, there’s a chance they’ll take a second look and override the decision.
Offer Personal References
If the finance manager is on the fence about approving your lease application, you can offer personal references to substantiate your claim that you’re no longer a credit risk. Of course, there’s no guarantee they’ll take you up on the offer, but it’s worth a shot.
Improve Your Credit Score
Rebuilding credit is a marathon, not a sprint. But if you’re not in a hurry to apply for a lease, there are some actions you can take to start climbing the credit score ladder sooner than later:
- Get current and stay current on your debt obligations. Payment history accounts for a whopping 35% of your credit score, so one late payment can tank your score by up to 100 points. But getting caught up and making timely monthly payments going forward will improve your credit score and show lenders that you can responsibly manage your debt.
- Reduce your debt utilization ratio. This is the percentage of revolving credit currently in use. So, if your credit card has a $500 credit limit and your current balance is $250, your credit utilization ratio is 50%. However, you should aim for 30% or lower on your credit card balances to help boost your credit score.
For more ways to improve your credit score, take a look at these valuable tips.
Consider a Lease Transfer
Under this arrangement, you can assume someone else’s lease without going through as much red tape. But keep in mind that they will conduct a credit check, and you must meet certain criteria to qualify. Visit LeaseTrader if you’re interested in shopping for a lease transfer.
Is It More Sensible to Buy?
Has the search for a lease turned out to be an absolute nightmare? If you’ve been handed several rejection notices or the offers are ridiculous, a car loan may be a better option.
The Case for a Subprime Loan
- The down payment will probably be lower, and some lenders require zero at signing.
- The interest rate on the lease will make the monthly lease payments too steep for what you can comfortably afford.
- You can refinance the loan once you have a good credit score to secure a lower interest rate.
- If you drive a lot, a lease may not be ideal as you run the risk of incurring excessive mileage fees if you exceed the preset limit. (Some dealers will allow you to purchase additional mileage, so inquire to learn more).
The Case for a Subprime Lease
- You’ll get a nicer car for a fraction of the cost, especially if the financing offer was accompanied by a steep down payment.
- An exorbitant interest rate on a subprime car loan will have you upside down for an extended period of time unless you make a large down payment. And if you want to sell the car in the next year or so, you’ll have to bring money to the table to get out of the car loan.
- You enjoy driving a different car every few years and don’t mind having a car payment.
If you can’t get approved for a lease, you can always try buying the car outright. The chances of getting approved are greater. And depending on the lender, it may not be necessary to bring a wad of cash to the table.
Don’t know where to get started? Check out our directory of auto lenders that specialize in loans for subprime borrowers.