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If you are looking to save money on your monthly car payment or like to drive new cars, leasing a car might be a good option for you. In 2017, customers taking out new car leases had an average credit score of 722, as reported by Experian. If you have an above average credit, 680 and up, you will likely qualify.
Leasing a car is like renting a home because you get the rights to use and possess the property for a specified period of time. When you lease a car, you only pay for the right to use the car for a couple of years. The payments on a lease are typically cheaper than loan payments would be on the same car because you are not paying for lifetime ownership rights on the vehicle.
Just because you are not purchasing the car, however, doesn’t mean your credit score doesn’t matter. Your credit score still represents the level of credit risk car dealers can expect when allowing you to lease one of their cars. Customers with the best credit scores usually get the best lease options, pay less up-front, and have lower monthly payments than customers with average or below average credit.
Minimum Credit Score to Lease a Car
Every dealership has different credit requirements for leasing a car, so there is not one minimum score you need to have in order to lease a car. Obviously, if you have a great credit score, you’ll have an easier time leasing the car you want. You’ll also get a better deal on the cost of the lease. In general, you should not have a problem obtaining a lease if your credit score is 680 or above. Only 22 percent of new car leases in 2017 went to customers with a credit score of 660 or below. So, you may have a harder time getting a good deal on a lease with a credit score lower than 660.
If you have a credit score over 720, you are considered to have excellent credit. You’ll typically get the lowest rates on your lease along with the lowest up-front costs. Over the past few years, the average credit score for someone leasing a new car was over 700. How much you can expect to pay is relative to how your credit score compares to that average.
As your credit score decreases from 720 down to 620, the monthly payment and the fees due at closing both increase. Once your credit score falls below 620, you may have to consider leasing a used car or looking for a dealer that offers subprime leasing terms. Customers with low credit scores pay more at closing and an average of $25-125 more per month on their lease.
Before You Apply For Leasing
Having good credit is just as important when leasing a car or home as it is when you are getting a loan to purchase a car or home. If you are considering leasing a car rather than buying because you have a bad credit score, you should probably re-consider that decision. So, it’s a good idea to improve your credit score as much as possible before applying for a lease. Here are a few tips for making quick improvements to your credit score ahead of leasing:
- Check your credit report for accuracy. You can get a free copy of your credit report once a year from each of the three credit agencies: TransUnion, Experian, and Equifax. Make sure you don’t have incorrect information reducing your credit score.
- Pay all of your bills on time. Be diligent about getting all of your bills paid on time. A late payment right before you apply for a lease could cause you to pay more.
- Reduce your credit utilization ratio. One of the factors in your credit score is your credit utilization ratio. This is the ratio of your outstanding account balance to your total credit limit. When your outstanding account balance is close to your total credit limit, there is a negative impact on your credit score.
Buying vs. Leasing a Car
When you buy a car, you are paying for the title and complete ownership rights of the car. The cost of leasing the same car is less than the cost of purchasing the car because a lease only gives you the right to use the car for a specified period of time. At the end of the lease, you do not own the car.
If you like to drive new cars or want to save money on your monthly car expense, leasing might be a good choice for you. On the other hand, leasing is expensive if you consider that you don’t own anything at the end of the lease. Leases also have strict mileage limits, so you should avoid leasing a car if you will be driving an exorbitant amount of miles per year.
You don’t need to have perfect or excellent credit to lease a car, but you should be aware that most people leasing cars likely have credit scores above 680. Although lease payments are lower than car loan payments, customers with average or below average credit may have an easier time getting a car loan for a used car than they would getting approved for a new car lease.
Author: Kimberly Goodwin, PhD