How to Lease a Car With Bad Credit

Learn how you can lease 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.

Build Credit: Download the MoneyLion app & Use A Credit Builder Loan.

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. 

How Does Leasing a Car Work?

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

When you lease a car, you don’t buy it. Instead, you essentially rent the car for a predetermined period of time, a set amount of mileage allowance with a time period of usually two to four years.

Step 1: Decide How Much You Can Spend

You must determine the car payment you can afford each month. You can do this by taking a look at your budget or using a car affordability calculator. Remember not all calculators are created equal – some just enter a few figures without taking into account other goals, expenses and your credit score.

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.

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 when you lease your car lender will require you to have comprehensive or full coverage on the vehicle.

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. You could try our car insurance calculator to see how much people like you pay for car insurance and ways to save.

Step 2: Finding 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 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. 

Step 3: Negotiating and Applying for a Car Loan

Even though you are not purchasing a vehicle outright, you still must apply for a loan at the car dealership. In this step, your credit will be hard checked and your debt to income ratio will be acessed to verify you can make the monthly payment.

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.

Step 4: Getting Approved

If your income and credit are eligible for the loan you will be able to drive your new vehicle off the lot the same day!

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. 

Step 5: Making Your Lease Payments

You will need to 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.

Step 6: Returning Your Lease or Purchase Your Vehicle

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. If you decide to return the vehicle after your lease is over – you might be responsible for any overages on mileage or damage to the vehicle outside of normal wear and tear.

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

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.

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 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. 

Sign Up
Sign Up
Sign Up