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If you like driving cars with the latest bells and whistles, you may consider leasing a new vehicle every few years to get the model you want at a lower monthly payment compared to getting an auto loan. But will that new car be within reach, and what will your payments look like if you have poor credit? It depends. Here's what you need to know about how a bad credit score can affect the leasing process.
Can You Lease a Car With Bad Credit?
Leasing a car is more difficult if you have poor credit, but it may not be impossible. While your credit score is an important factor leasing companies use to determine your eligibility for a lease, it isn't the only one. They also consider your income, down payment and more. If you're approved for a lease with bad credit, you'll likely receive a higher interest rate than someone with a strong credit profile.
What's the Minimum Credit Score to Lease a Car?
Because each lender establishes its own credit criteria, no minimum credit score will guarantee approval of your lease application. However, maintaining credit scores of at least 700 will give you the best chance of qualifying. You can check your credit score from Experian for free before applying to see how it may affect your ability to secure a lease.
Disadvantages of Leasing a Car With Bad Credit
Even if you can get a lease, it may not be your best bet if you have poor credit. Here's why.
It Will Cost You
People with lower credit scores typically qualify for higher rates than people with good credit. Higher rates translate to larger monthly payments that can stretch your budget, leaving less for other expenses. If you secure a lease and cannot continue making your payments, you may have to pay an early termination fee to end your lease before it expires.
You Won't Own the Vehicle
This may seem obvious, but when the lease is up, you must return the vehicle to the dealer or buy out the lease—if that's an option on your contract. If you don't have the cash to buy out your lease, you'll have to start from scratch to get another set of wheels, which can be challenging if you still have poor credit.
Your Options May Be Limited
Not all leasing companies are willing to work with people who have bad credit, which may limit your choice of vehicles, rates and lease terms. If you have your heart set on a lease, you may not have a lot of options to choose from.
How to Lease a Car With Bad Credit
You may improve your chances of securing a lease with bad credit by taking one or more of these steps:
- Get a cosigner. Having a cosigner with good credit, who is responsible for making payments if you can't, may help you qualify for a lease.
- Make a large down payment. When you take out a lease, the leasing company still owns the car. A larger down payment reduces their financial burden if you're unable to make your payments and may improve your chances of qualifying.
- Choose a more affordable car. Companies may be more willing to lease you a less expensive vehicle if you have bad credit because they won't be on the hook for as much if you're unable to make your payments.
- Shop around. Because credit criteria vary, it's worth checking out multiple leasing companies. Even if one turns you down, you may be able to qualify for a lease elsewhere.
Other Options for Getting a Car if You Have Bad Credit
If your lease application is turned down because you have poor credit, it may be worth investigating other options if you need a set of wheels. Here are a few to consider.
Lease Transfer
You may be able to take over a lease from someone who wants out of theirs. When you assume someone else's lease, you're responsible for the monthly payments under the original lease terms. Before transferring the lease, the company will check your credit. You typically need to have a similar or better credit profile than the person who secured the original lease.
Vehicle Subscription Services
Vehicle subscription services work similar to streaming services or online membership communities. You pay a monthly fee to drive a car you choose with no long-term commitment—subscription contracts typically last six to 12 months. The fee includes the cost of the vehicle's registration, insurance and maintenance, plus roadside assistance. At the end of the contract, you can return the car or sign up for another subscription.
The service will check your credit during the application process, but credit requirements usually aren't as strict as they are for a lease.
Buy a Used Car
If you can't qualify for a lease, you may have better luck purchasing a used car. Because the vehicle acts as collateral for the loan, credit requirements may be less stringent to get a loan than a lease. In the first quarter of 2024, the average credit score for a used car loan was 686, while the average score for a new car lease was 751, according to the Experian State of the Automotive Finance Market report.
How to Improve Your Credit
Poor credit doesn't just affect your ability to qualify for a lease. It affects your ability to secure any type of credit and qualify for favorable rates and terms. Here are a few tips that may help you improve your credit.
- Pay your bills on time. Your bill-paying history is the single most important factor in calculating your credit scores. On-time payments can help improve your scores, while late and missed payments can decrease your scores.
- Pay down revolving debt. The amount of credit you use compared to the amount you have available, also known as your credit utilization ratio, is another factor used in credit scoring models. Typically, lower ratios positively affect your scores, while higher ratios have a negative effect.
- Apply for credit sparingly. When you apply for credit, the lender pulls your credit reports, generating what's known as a hard inquiry. A single hard inquiry may temporarily reduce your scores by just a few points, but multiple inquiries in a short period can have a bigger impact.
- Keep old accounts open. The longer your credit history, the better. Closing old accounts can result in a drop in your credit scores. Instead of closing unused accounts, consider using them to pay a small recurring bill to maintain the length of your credit history.
- Correct errors. You shouldn't be penalized for mistakes in your credit history. You have the right to dispute inaccurate negative information, which may help improve your credit scores. You can check your Experian credit report for free anytime and your credit reports from all three consumer credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com.
Is a Lease Right for Me?
Only you can decide whether leasing a vehicle is right for you. With bad credit, getting a set of wheels will cost you more than if you had good credit. If possible, it may be best to put off getting a car until you take steps to improve your credit. If you can't wait, be sure to compare multiple ways you can get a car, including leasing, buying, lease transfer and vehicle subscription services to find an affordable option that meets your needs.