Over the last few years, car leasing has grown in popularity as more Americans than ever choose to lease instead of buy. About 30% of new cars were leased in the first quarter of 2020, which was up from 27% in 2015.
For many, a car lease can be a more economical option that still puts them behind a valued set of wheels. If you are among those shoppers who find leasing suitable to their needs and lifestyle, you've likely asked yourself, what credit score is needed to lease a car?
Whenever borrowing to buy a major asset, your credit score is sure to come into play. For the best shot of being approved for favorable lease terms, you should have a credit score of at least 700. Some companies may be willing to lease to you with a lower credit score, depending on the cost of vehicle, down payment, and other credit or contract terms.
You should review your credit report before applying for a lease. Your credit report details your debt history and should provide valuable insight as to the state of your credit profile and credit score. It can give you an idea of how lenders may perceive you. Chase Credit Journey is a credit monitoring service that can help you stay on top of your credit report. It lets you check your credit score anytime without harming your credit profile. It can also monitor your credit report and send you alerts whenever changes occur. By disputing errors on your credit report, you may be able to have some of the negative items removed. This can be one of the quicker ways of boosting your credit score and improving your shot at landing a new lease.
Also, you are allowed one free credit report per year from each of the three major credit bureaus — Experian®, Equifax®, and TransUnion®. Or, to keep things simple, just use a credit monitoring tool such as Chase Credit Journey.
What is a good credit score to lease a car?
A score of 700 may be enough to get your foot in the door at most places, but a higher score never hurts.
Those with lower scores aren’t out of luck entirely, but they may have less favorable lease terms and may have to bring more cash to closing to get their hands on the keys. Like most financial services, the higher your credit score, the easier it should be for you to walk away with a deal. A few months of paying down debt and on-time bill payments could give you the credit score needed to lease a car on your terms.
Can you lease a car with a low credit score?
You can lease a car with a low credit score, but it may cost you more money upfront and in the long run, as well. Lenders and car leasing companies use credit scores to gauge a borrower's risk. Charging high-risk borrowers more can help lenders mitigate potential losses.
A low credit score could also limit your options when it comes to choosing your new lease vehicle. If you have your eye on a specific make and model, improving your credit score before applying could help you lock it down.
It's hard to pinpoint the lowest credit score needed to lease a car because your experience can vary from lender to lender and state to state.
If you're approved for your lease, you can use it as an opportunity to boost your credit score, which could give you more leverage when it comes time to upgrade. Just make sure to stay on top of your payments. Lease payments are reported to the major credit bureaus the same way finance payments are. On-time bill payments are one of the strongest factors influencing your credit score, so keeping up with your lease payments should have a positive effect.
If you're looking to save on monthly payments and the overall cost of your lease, consider making a capitalized cost reduction or down payment. Essentially, this is a lump sum payment made at the beginning of your lease to reduce the amount you are financing under the lease.
Pros and cons of leasing a car
Leasing a car comes with a lot of pros. However, there are a few things drivers should be aware of if they wish to make an informed purchase.
Pros of leasing a car
Often, you get to drive a new car for less than it would cost you to finance a used one, since your payments cover the cost of depreciation rather than the vehicle's principal. Regular maintenance may be included in the warranty, which could mean less headache for you. Since most leases are new vehicles, you may require minimal maintenance to keep the car in good shape. After a few years, you may be given the option to buy, upgrade, or try something new. Not to mention, you can avoid the hassle of finding a buyer for your vehicle when you're ready for a change. Leasing tends to be the option for those who prefer to stay up-to-date with the latest in innovation and tech.
Cons of leasing a car
The main con is that you do not own the car. The money you spend every month goes to the leasing company rather than building equity. A car can be a valuable asset, and when you lease, you miss out on a valuable ownership opportunity. Leasing one car after another may cost you more in the long run since the payments continue as long as you are leasing. In contrast, when you purchase a car with financing, your payments end once you've repaid the financing. Not to mention, when leasing vehicles, you have to keep them under a certain mileage limit and in a certain condition if you want to avoid piling up costly fees.
To learn more about the benefits and pitfalls of leasing a new vehicle, visit Chase Auto Education, today.