Leasing a Car with Bad Credit: What You Need to Know

Are you someone who loves driving the latest cars with all the modern features? Leasing a new vehicle every few years might be an attractive option for you, especially since it often comes with lower monthly payments compared to buying a car outright. However, if you have bad credit, you might be wondering if leasing a car is even possible for you. The answer is: it depends. Here’s a comprehensive guide on how bad credit can affect your ability to lease a car and what you can do about it.

Can You Lease a Car With Bad Credit?

Leasing a car with bad credit is more challenging, but it’s not entirely out of reach. While your credit score is a significant factor that leasing companies consider, it’s not the only one. They also look at your income, down payment, and other financial details. If you do get approved for a lease with bad credit, be prepared for higher interest rates compared to someone with a strong credit profile.

What’s the Minimum Credit Score to Lease a Car?

There’s no universal minimum credit score that guarantees lease approval, as each lender has its own criteria. However, maintaining a credit score of at least 700 will give you the best chance of qualifying. You can check your credit score from Experian for free before applying to see how it may affect your ability to secure a lease.

Disadvantages of Leasing a Car With Bad Credit

Even if you manage to secure a lease with bad credit, it may not be the best option for you. Here’s why:

It Will Cost You

People with lower credit scores typically qualify for higher interest rates, which translate to larger monthly payments. This can stretch your budget and leave less room for other expenses. If you secure a lease but can’t keep up with the payments, you may have to pay an early termination fee to end your lease prematurely.

You Won’t Own the Vehicle

When the lease term ends, you must return the vehicle to the dealer or buy out the lease if that’s an option in your contract. If you don’t have the cash to buy out your lease, you’ll have to start from scratch to get another car, which can be challenging if you still have poor credit.

Your Options May Be Limited

Not all leasing companies are willing to work with people who have bad credit, which may limit your choice of vehicles, rates, and lease terms. If you’re set on leasing, you may not have many options to choose from.

How to Lease a Car With Bad Credit

If you’re determined to lease a car despite having bad credit, here are some steps you can take to improve your chances:

Get a Cosigner

Having a cosigner with good credit who is responsible for making payments if you can’t may help you qualify for a lease.

Make a Large Down Payment

A larger down payment reduces the leasing company’s financial risk if you’re unable to make your payments, which may improve your chances of qualifying.

Choose a More Affordable Car

Leasing companies may be more willing to lease you a less expensive vehicle if you have bad credit because their financial risk is lower.

Shop Around

Credit criteria vary among leasing companies, so it’s worth checking out multiple options. Even if one company turns you down, you may be able to qualify for a lease elsewhere.

Other Options for Getting a Car if You Have Bad Credit

If leasing isn’t an option due to your bad credit, consider these alternatives:

Lease Transfer

You may be able to take over a lease from someone who wants out of theirs. When you assume someone else’s lease, you’re responsible for the monthly payments under the original lease terms. The leasing company will check your credit, and you typically need to have a similar or better credit profile than the person who secured the original lease.

Vehicle Subscription Services

Vehicle subscription services work similarly to streaming services. You pay a monthly fee to drive a car with no long-term commitment. The fee includes the cost of the vehicle’s registration, insurance, maintenance, and roadside assistance. At the end of the contract, you can return the car or sign up for another subscription. Credit requirements for these services are usually less strict than for a lease.

Buy a Used Car

If you can’t qualify for a lease, you may have better luck purchasing a used car. Because the vehicle acts as collateral for the loan, credit requirements may be less stringent. In the first quarter of 2024, the average credit score for a used car loan was 686, while the average score for a new car lease was 751, according to the Experian State of the Automotive Finance Market report.

How to Improve Your Credit

Poor credit doesn’t just affect your ability to qualify for a lease; it impacts your ability to secure any type of credit and qualify for favorable rates and terms. Here are some tips to help you improve your credit:

Pay Your Bills on Time

Your bill-paying history is the most important factor in calculating your credit scores. On-time payments can help improve your scores, while late and missed payments can decrease them.

Pay Down Revolving Debt

The amount of credit you use compared to the amount you have available, known as your credit utilization ratio, is another factor used in credit scoring models. Lower ratios positively affect your scores, while higher ratios have a negative impact.

Apply for Credit Sparingly

When you apply for credit, the lender pulls your credit reports, generating a hard inquiry. A single hard inquiry may temporarily reduce your scores by a few points, but multiple inquiries in a short period can have a bigger impact.

Keep Old Accounts Open

The longer your credit history, the better. Closing old accounts can result in a drop in your credit scores. Instead of closing unused accounts, consider using them to pay a small recurring bill to maintain the length of your credit history.

Correct Errors

You shouldn’t be penalized for mistakes in your credit history. You have the right to dispute inaccurate negative information, which may help improve your credit scores. You can check your Experian credit report for free anytime and your credit reports from all three consumer credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com.

Is a Lease Right for Me?

Only you can decide whether leasing a vehicle is right for you. With bad credit, getting a set of wheels will cost you more than if you had good credit. If possible, it may be best to put off getting a car until you take steps to improve your credit. If you can’t wait, be sure to compare multiple ways to get a car, including leasing, buying, lease transfer, and vehicle subscription services to find an affordable option that meets your needs.

At O1ne Mortgage, we understand that navigating the world of car leasing and loans can be challenging, especially with bad credit. If you need assistance or have any questions about mortgage services, don’t hesitate to call us at 213-732-3074. We’re here to help you find the best solutions for your financial needs.