Leasing a Car With Bad Credit

Do you have low credit or no credit? Leasing a vehicle might be the right solution for you if you’re working to save money or you have limited income. Leasing a car means you get to drive a new car for a lower monthly payment than if you were to buy the car. You may even have the option to purchase the car at the end of your lease. However, your credit score will also play a major role in your ability to find a great lease.

Today, we’re going to take a closer look at how you can lease a car with bad credit. We’ll go over the steps you’ll take to lease a car as well as a few credit score considerations. Finally, we’ll give you some insider tips you can use to raise your credit score. 

Overview: How Does Leasing a Car Work?

Let’s take a look at how leasing a car works.

Understand What a Lease Is

When you lease a car, you don’t buy it. Instead, you essentially rent the car for a predetermined period of time, usually between two and four years. First, you must make a down payment with your dealer to secure the car. Then, you make monthly payments on your lease. You’re responsible for covering the cost of car insurance and maintenance. Leases allow you to drive a new car without paying the full price for the vehicle. Leases allow you to “test drive” a car for a long period of time.

You may have the option to buy the car at the end of your lease. However, many leases stipulate that you must hand the car back to the dealer as soon as your lease is up. Leasing might be right for you if you don’t hold onto cars for long. You’re usually better off buying a used car than leasing if you have a long-term need for a reliable vehicle. Make sure that leasing is right for you before you choose a lease.

Decide How Much You Can Spend

Decide how much you can afford to spend each month as soon as you’re sure that you want to lease a car. Lease payments are usually less than the equivalent monthly payments to buy the same car new, so you may be able to afford a nicer model if you lease. Decide how much you can realistically spend each month on lease payments.

Remember that when you lease, you often must give the car back at the end of your term. It’s a good idea to try and save a little money each month throughout the duration of your lease to buy a car when your lease is up.

You’ll also need to think about monthly insurance costs, especially if you’ve never owned a car before. Car insurance is a legal requirement to drive a vehicle and you must maintain a current insurance policy to stay on the road. 

Monthly car insurance premiums can vary depending on where you live, what you drive, your credit score and even your gender. Request a quote from a few insurance companies in your area to see what you can expect to pay before you get a lease. Be sure to sign on your policy before you get behind the wheel — a gap in coverage can leave you legally liable. 

Find Your Car

Visit a dealership and browse vehicles available for lease once you’ve set your budget. Most dealerships sell cars after they lease them, so the newest models will often be the only ones available for lease. Not every dealership offers leasing programs, so be sure to ask a salesperson or associate for assistance when you at the dealership.

You should shop for a vehicle to lease the same way that you would shop for a car to buy. Take the vehicle for a test drive, consider the vehicle’s fuel efficiency and features and pick a car that you think you’ll be comfortable in for a few years. Don’t be afraid to shop around at more than one dealership before you choose a car. 

Negotiate and Apply

Negotiate your terms with the dealership when you find the vehicle that’s right for you. You can haggle everything from your monthly lease payments to any additional fees the dealer charges. Ask about fee reductions or waivers. You may want to shop at multiple dealers until you find a deal that works for you.

Your dealer might ask you to submit some financial paperwork, view your credit report, your last bank statement or verify your employment history. Dealers ask for this information because they need to be sure that you’re able to cover your lease payments for the entire term. Your dealer may change the terms of your offer or cancel it altogether if you have bad credit or no credit.

Knowing your score before you shop for a lease can help you avoid unpleasant surprises. Many drivers wait to apply for their lease until they bring their score into FICO’s “good” range — between 670 to 739 points. You might have a more difficult time finding a dealer willing to work with you if you have a score lower than this.

Read and Sign Your Paperwork

Your dealership will draw up a contract for you when you reach an agreement on car and price. Carefully read over the contract and make sure that the terms in the lease match the terms you verbally agreed to. Pay close attention to the lease term, which is how long you’ll have the car. Review your monthly payment, your down payment, any fees and your interest rate. Make sure it includes a “buyout price” if you’d like to be able to buy the car at the end of the lease.

Don’t sign the contract if something on the contract doesn’t match your original agreement. Even if the dealer says he or she will fix it, don’t sign until you see it corrected in writing. Consider it a major red flag if the dealer pressures you to sign a contract that’s wrong or incomplete.

Pay your dealer the agreed-upon down payment if your contract looks correct. You will also want to make sure that your car insurance is current or you have a gap policy in place before you sign. From there, your dealer will explain how you can make your monthly payments and you can drive off in your new car. 

Can You Lease a Car with Bad Credit?

It’s not impossible to lease a car if you have a bad credit score. However, it will be much more difficult for you to find funding and a good lease if your score is low. Dealerships need to limit who they lease to in order to limit their risk of financial loss. Though you may still be able to get a lease, you’ll pay a higher down payment and monthly rate than if your score is higher.

As a general rule, dealerships look for lessees with credit scores in the “good” range or above for the best deals. You have a good credit score if your FICO credit score is 670 or above. You’ll want to take some time to improve your score before you look for a lease if your score is below that. Even if your score is already in the good range, pumping up your numbers can give you access to lower down payments and interest rates. 

According to data from credit reporting bureau Experian, the average credit score of a lease applicant is 724. Almost anyone can benefit from improving their score before they apply. 

How to Increase Your Credit Score Before You Lease a Car

Think a lease is right for you? Prepare before you head to the dealership with these easy credit-building steps.  

Use a Credit Monitoring Service

A credit monitoring service also helps you prevent identity theft by alerting you to new items on your report. This can help you stop any damage from fraud before it can do serious damage to your score. Sign up with a credit monitoring service before you start working on your score to track your progress.

Look into Credit Builder Loans

A credit builder loan is a small, low-interest personal loan that helps you improve your credit score. You’ll get a lump sum payment that you can use for just about anything. Then, you pay your loan back in monthly installments with interest. 

Your loan provider reports your on-time payments to the major credit reporting bureaus, which raises your score over time. Credit builder loans are a great way to prove that you’re able to manage due dates as well as add a little diversity to your credit portfolio. Consider taking out a small, manageable loan and paying it back before you apply for a lease. 

Make Your Payment On Time

One of the most important factors in your credit score calculation is your payment history. Making your credit card, loan and other payments on time is a tried-and-true way to help raise your score. 

Review your minimum payment due dates on all of your outstanding accounts and make sure you’re submitting your payments on time. Then, be patient. You’ll see your score rise as soon as these timely payments start to appear on your credit reports.

Getting a New Lease on Your Score

Improving your credit score can make getting a lease simpler, less stressful and less expensive. From lower down payment requirements to more manageable monthly dues, lessees with high credit scores save money and have access to newer vehicle models. Know your score before you apply for a lease and create a plan to improve your numbers if they’re low.

From a credit monitoring to score-boosting 5.99% APR credit builder loans with the Credit Builder Plus membership, MoneyLion has a lot of tools you can use to elevate your credit score. The MoneyLion app also has a Loans Marketplace, where you can find auto and other loans for bad credit. Download the MoneyLion app from the Google Play or Apple App store today to learn more or get started. 

Disclosure

MoneyLion Checking Account provided by, and MoneyLion Visa® Debit Card issued by, Lincoln Savings Bank, Member FDIC. Terms and conditions apply.

Current Credit Builder Plus membership required for Credit Builder Plus loan eligibility; the $19.99 monthly fee will be withdrawn from your linked bank account.  All loans with an Annual Percentage Rate of 5.99% are made by either exempt or state-licensed subsidiaries of MoneyLion Inc. The Credit Builder Plus loan may, at lender’s discretion, require a portion of the loan proceeds to be deposited into a reserve account managed by ML Wealth, LLC and held by Drivewealth LLC, member SIPC and FINRA. The funds in this account will be placed into a money market cash management or FDIC bank sweep vehicle, and may generate interest at prevailing market rates.  You will not be able to access the portion of your loan proceeds held in the credit reserve account until you have paid off your loan, and so long as your Credit Builder Plus membership payments are current. If you default on your loan, your credit reserve account may be liquidated by the lender to partially or fully satisfy your outstanding indebtedness. May not be available in all states. Credit Reserve Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Credit Reserve Account, see Investment Account FAQs and FORM ADV.

A Credit Builder Plus loan may or may not improve your credit score. Credit scores are the result of your personal credit practices.