What Credit Score Do You Need To Lease A Car?

If you’re like me and don’t drive excessive miles and you love getting new cars every couple of years, you may benefit from leasing a car versus buying it. Most leases require a minimal or no down payment, and monthly payments are often much lower than you would have with a loan.

However, there’s one downside. You need the minimum credit score to lease a car, just like if you were to buy it. While that seems unnecessary since you don’t own the vehicle, leasing companies take a big chance leasing the vehicle to you, so they must ensure you are reliable.

What credit score do you need to lease a vehicle?

Just like when you buy a car, one of the first things the dealership will do is run your credit when you lease. This tells them if you are eligible for lease approval and what kind of interest rate they can offer. Generally, you will need a score of around 620 to qualify for a lease, but it differs by company. Keep in mind that the lower your credit score range, the fewer options you will have in negotiating a lease deal.

Credit guidelines for leases usually fall within the following categories:

• Super prime: You fall into this category if you have scores of 780 and above. Lessees in this category can often negotiate the best interest rates and lenders consider them a minimal risk.
• Prime: You are in the Prime category if you have scores between 660 and 780. If you fall into this category, your approval odds are very good but you’ll likely get higher interest rates than if you were a Super Prime lessee.
• Non-prime: You are a non-prime candidate if your score falls between 600-660. You may still get lease approval, however, you may have to make more of a down payment and your interest rate may be much higher.
• Sub-prime: If you have a score lower than 600, you fall in this category and are unlikely to be approved for a lease. If you are, you may have much higher financial requirements than any of the other categories.

5 tips to improve your credit score before you lease

Knowing your credit scores from Equifax, Experian, and Transunion is an important first step to preparing to apply for a lease. If you would like to improve your credit score fast before moving forward, here are a few things you can do.

1. Correct inaccuracies on your report: Get and review your free credit report from all three agencies. If you notice discrepancies, file disputes for any items that are inaccurate. Inaccuracies may negatively affect your score, and with the right proof, you can get them removed.
2. Pay any items in collections: Items listed as in collections can have a significant impact on your credit score. If you have collection accounts on your report, you can contact the creditor and ask them to remove the listing in exchange for paying the balance, which may increase your score.
3. Pay on time: Late payments can have a negative impact on your credit score. Work on learning how to manage your money and ensure that you make all of your payments on time to avoid this.
4. Don’t overextend: Living within your means will allow you to make payments on time and ensure your credit score remains healthy. Try keeping your credit utilization as low as possible to increase your credit score.
5. Pay down debts: Reducing the amount you owe on any of your credit card or loan accounts will give your scores a boost, just like avoiding overextending yourself. If you already have existing debt, the more you can pay down, the better.

How does leasing a vehicle work?

When you lease a vehicle, you are basically renting it from the owner for a few years. You agree to pay the owner a monthly fee that will cover the cost of the vehicle’s depreciation, plus interest, over the course of the lease agreement. These payments are often much lower than a typical car payment because you finance the vehicle’s full cost when you buy a car, whereas a lease only covers the expected depreciation during the lease term, which is only a few years.

At the end of the lease term, you will have a few options. You can opt to extend the lease, return the vehicle to the owner and either lease or buy something new, or take out a loan to pay for the remainder of the car’s value.

Pros of leasing a car

There are several advantages to leasing a car, including the following:

• Change vehicles often: You can start a new lease every couple of years, which allows you to take advantage of the latest models.
• Lower payments: Most lease payments are lower than car payments, keeping your car costs down.
• Lower or no down payment: Many leases don’t require a down payment and those that do are usually much lower than what’s required when you buy a car.

Cons of leasing a car

It’s important to consider the downsides of leasing a car, including:

• No ownership: When you lease, you’re not paying toward ownership of your vehicle. You pay your monthly “rental” fee and interest on the lease, and in the end, you have to give the car back and have nothing to sell or trade in.
• Multiple credit inquiries: Depending on how often you turn in leased cars and start another, you could have an excessive number of hard inquiries on your credit report which could decrease your score. Hard inquiries also stay on your record for up to two years.
• Mileage restrictions: Lease contracts include mileage restrictions with some as low as 10,000 or 12,000 miles per year. If you go over the mileage, you could owe additional and substantial fees at the end of the lease.
• Other fees: You may face fees for any physical damage to the vehicle that falls outside the category of normal wear-and-tear as well as a disposition fee that covers preparation of the vehicle for resale.

On top of all of this, your lease company may require you to pay for GAP insurance. This is a special type of coverage that ensures if something happens to total the car, the difference between what is owed on the lease and the total value of the car will be paid for by the insurer.

FAQs about leasing a car

Bottom line

There are many reasons to consider leasing vs buying a car, but you must have the credit score to lease a car. If you have a lower score, you’ll likely pay much higher fees and leasing may not be worth it.

I suggest comparing the option to lease and buy the car, considering the length you’d normally keep a car to ensure you choose the right option. Leasing works great for some people, but for others, buying makes more sense.