Leasing a car rather than buying can mean lower payments, but will your credit score stand in the way?
Customers starting a new lease at the end of 2016 had an average credit score of 720, according to credit bureau Experian. There’s still hope if your score is lower, though: The report said more than one in five new-car leases went to customers with scores between 660 and 501.
Lease requirements vary
Leasing is just another way of financing a car, says Scot Hall, executive vice president of operations for Swapalease, an auto lease marketplace. You’re just buying a portion of the car’s life rather than buying to own.
As with car loans, the best deals go to the people who present the lowest risk that they won’t pay as promised. That’s why the ads say things like “available to well-qualified lessees; higher lease rates apply for lessees with lower credit ratings.”
Your credit score figures prominently into whether you get financing, whether it’s a lease or a loan. But the finance office will also look at your income, existing payment obligations and track record for handling debt. Lease requirements vary by automaker, and they change depending on market conditions.
A score of 680 provides a good dividing line for understanding what to expect, Hall and other experts say.
If your credit score is 680 or above
You’re going to find it easy to lease at multiple places and you’re likely to get the attractive deal seen in the ads. When you’re approved to lease, you will likely have room to customize the deal a bit — for instance, asking for $0 down in exchange for higher monthly payments.
The basic deal offered for a particular make and model is generally uniform across regions, and the lender is typically an arm of the car manufacturer (Toyota Financial Services, for example). You might find some special deals on particular models as you shop for a car lease. If you’re choosing among similar lease deals, pick a dealer with a reputation for good service, advises Matt Jones of automotive shopping site Edmunds.com.
If your credit score is lower than 680
Leasing gets a bit more challenging at lower score levels. You’re likely to have to pay more at signing and you may have to pay more each month, too; Jones says it could be as little as $10 or as much as $125. Still, he says, lease payments are often lower than loan payments to buy the same car.
You also may not be able to lease precisely the model you wanted under the terms you qualify for. Have a few backup choices you’d be happy with, in case your first pick is out of reach.
Afraid you won’t get the terms you want?
If you’re worried your credit won’t get you the lease terms you want, work on building your score. One quick method: Whittle down high balances on your credit cards to less than 30% of the limit on each — and lower is better. Credit utilization has a big effect on scores, and you can see a change as soon as you lower a balance and the issuer reports it to the credit bureaus.
Other ways to build your credit:
- Pay every bill on time, every time; payment history is the other major influence on your scores
- Check your credit reports for errors that could be lowering your score
- Keep credit accounts open unless there is a compelling reason to close them, like an annual fee
Keep in mind the credit score needed to buy a car has a bit more wiggle room. If leasing doesn’t work out, weigh whether getting a car loan makes sense for your budget.