There’s no specific minimum credit score requirement to lease a car. Your credit score is just one factor dealerships consider when deciding to approve you for a lease, and approval requirements can vary from dealership to dealership. But typically, the higher your credit score is, the more likely you are to be approved and the better your leasing terms will be.
According to Experian, in the 3rd quarter of 2022, the average credit score to lease a vehicle was 736. If your score is below that, it doesn’t mean you can’t lease a car. However, the lender might see you as a higher risk for default and you might receive less favorable lease terms than if you had a higher credit score.
This post helps you understand the ins and outs of leasing a car and how your credit score and credit history might impact your lease terms as well as your chance at approval.
When lenders assess your credit, they evaluate how likely you are to pay as agreed. One factor they consider is your FICO® Score, and borrowers have scores that typically fall into categories referred to as borrower risk profiles.
Although the scores fall into the five ranges in the table below, lenders typically refer to borrowers as prime, meaning you are least likely to default on your payments, and subprime, meaning you are more likely to default. So when leasing a car, where your score falls in these risk profiles may impact your lease’s monthly payment or your lease terms.
|Borrower risk profile||FICO Credit score|
|Deep subprime||Below 580|
|Super-prime||720 or above|
Keep in mind that you may have multiple credit scores depending on the credit scoring model used. One dealership may use a different model than another, resulting in a higher or lower credit score.
You may be able to lease a car with bad credit. However, the lender may see you as a higher risk for default, so you might receive less favorable lease terms to compensate for that risk.
How each leasing company calculates your monthly payment might also vary slightly. They typically factor in:
If you have a low credit score, consider shopping around to compare lease offers. Different car makers all have different lease deals. You may think you have a bad credit score because it puts you into the subprime category, but, depending on the lease offer, you may be able to qualify for a lease that meets your needs by paying a larger down payment upfront or by adjusting other lease terms.
Applying to lease a car is similar to applying for a car loan. The lender reviews several factors in addition to your credit score and credit report to assess the likelihood that you will pay what you owe as agreed. The lease application process could trigger a hard inquiry, which may temporarily lower your credit score.
Because consumers tend to rate shop for certain types of loans, FICO® treats rate shopping for a lease differently. Although a hard inquiry appears on your credit report for each lease application, FICO® treats them as one inquiry as long as they fall between 14 days for older FICO® Score versions and 45 days for newer versions.
Once you have an active car lease, you’re responsible for making your lease payments. If you miss a payment on a lease, it may negatively impact your credit score. On the other hand, if you make on-time payments on your lease each month, your account can help you build credit and could potentially lift your credit score. Payment history is the most significant factor in your credit score, making up 35% of your FICO®.
Leasing a car can be a great option if you aren’t ready or able to purchase. Here are some of the benefits.
The monthly payments on an auto lease are typically lower than the auto loan payments for the exact same vehicle. You’re only paying for the car’s depreciation during the lease period with mileage limitations, but also pay upfront fees and the money factor, which is equivalent to your interest rate.
Leasing a car means you’re paying to use it for an agreed-upon amount of time and miles. At the end of the lease, you return the car to the dealership. You don’t have to worry about selling your car, but you will pay for wear and tear when you turn your car in if you didn’t take care of the car.
You also don’t have to think about the car’s trade-in value — the amount of money a car dealer may pay for your old car towards the purchase of a new car — which can be difficult to calculate.
Compared to used vehicles, new leased cars may have fewer maintenance issues because you are driving a brand new car. While a used car may have a cheaper monthly payments, leased vehicles may cover more maintenance and repair issues within the manufacturer’s warranty.
Newer cars also typically come with a bumper-to-bumper warranty period. These warranty plans help cover the cost of repairs for the car if any are needed. With a used vehicle, you may have to pay extra for this type of warranty coverage.
Leasing a car can be a great option, but it isn’t for everybody. Here are some of the potential downsides.
You may be required to pay for any wear and tear on the vehicle when you return it. If you damage the vehicle or don’t maintain it well over the course of your lease, you might end up paying additional costs to compensate.
Lease agreements specify the mileage you’re allowed on your leased vehicle. If you go over that limit, you usually have to pay an excess mileage penalty. You can add miles to your lease agreement before signing, but that typically results in a higher monthly payment. If you don’t use the miles, you don’t get that money back as a credit.
When you’re leasing a car, you’re borrowing it for a set amount of time and miles. At the end of the lease, you return the vehicle, so unless you plan to start another lease or have another car to drive, you have no vehicle.
If you decide you don’t like the car, or want to end your lease early for any reason, you may be charged a termination fee. Early termination fees are typically the difference between the balance remaining on the lease and the amount credited to the vehicle.
These fees can be pretty steep. Typically, the early termination charge is the difference between the balance you have remaining on your lease (lease payoff amount) and the amount credited for the vehicle (the vehicle’s realized value). For example, if your lease early termination payoff is $15,000, and you have $13,000 credit for the vehicle, then your early termination charge will be $2,000 ($15,000 minus $13,000).
If leasing a car isn’t quite right or feasible for you, there are other options. Here are some alternatives to leasing a car to consider.
By law you can check your credit report once a year for free from each of the major credit bureaus, which you can access at AnnualCreditReport.com. However, due to the COVID pandemic, the three major credit reporting bureaus (Experian, Equifax and TransUnion) will continue to offer free credit reports weekly through the end of 2023. Experian offers access to a free credit score when you set up a free account.
Bad credit can be a major barrier to a lot of major financial decisions and opportunities. But, no matter where you’re starting from, there are ways to work toward good credit. Here are some strategies to try:
Working to improve your credit can be overwhelming, and it takes time and patience. However, Self has resources and information to support you every step of the way.
Disclaimer: FICO is a registered trademark of Fair Issac Corporation in the United States and other countries.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).
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