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Just as with a car loan, you generally need good credit for a car lease. In the first quarter of 2024, the average credit score for a new car lease was 751, according to the Experian State of the Automotive Finance Market report.
This means the average credit score for a new car lease is higher than the average overall credit score. The average FICO® Score☉ in the U.S. climbed to 715 in 2023, with most scores falling between 600 and 750.
Although you may be able to lease a car with a lower-than-average credit score, you might end up paying a higher interest rate or coming up with a big down payment to secure approval.
Do You Need Good Credit to Lease a Car?
When a financing company reviews an application for a car lease, it looks for signs that you're a dependable borrower. One of those signs is a good credit score. Why? Because, statistically speaking, the better your credit score is, the less likely you are to miss lease payments.
In other words, a good credit score indicates you're a creditworthy borrower.
How Are Monthly Car Lease Payments Determined?
Monthly lease payments on a car are determined by the vehicle's expected depreciation and the interest rate.
To calculate depreciation (also known as amortization), a lender subtracts the car's anticipated residual value from its purchase price. The residual value is what the lender predicts the car to be worth at the end of your lease. Your lease principal is the difference between the purchase price and the residual value.
According to Experian's 2024 State of the Automotive Finance Market report, the average monthly payment for a leased car is $595. Leasing cost factors include the interest rate, term length and fees.
It's worth noting that the interest rate for a car lease is actually a "money factor" shown as a decimal. For example, a money factor of 0.0025 would equal a 6% interest rate and a money factor of 0.0035 would equal 8.4%. Keep in mind that a higher credit score should result in a lower interest rate for a car lease, and vice versa.
Example of Monthly Car Lease Payment
The table below offers an example of how a monthly payment for a three-year car lease might be calculated.
| Lease Term | Car Price | Down Payment | Residual Value | Interest Rate | Sales Tax Rate | Monthly Payment |
|---|---|---|---|---|---|---|
| 36 months | $40,000 | $4,000 | $22,000 | 7.25% | 8.5% | $612 |
What Credit Score Do You Need to Lease a Car?
There's no standard credit score needed to lease a car. However, you stand a better chance of being approved for a lease with a favorable interest rate if you have good credit or better. On the FICO scoring range, that's a score of 670 or above, though lenders may prefer a score of 700 or above.
Can I Lease a Car With a Bad Credit Score?
Yes, you may be able to lease a car with a bad credit score. But you might be charged a higher interest rate, leading to a bigger monthly payment.
To boost the likelihood of being approved for a car lease, consider:
- Making a big down payment
- Paying off debt to reduce your debt-to-income ratio
- Approaching a friend or relative with good credit to cosign your lease
Remember that you can negotiate various aspects of a car lease, such as your interest rate and trade-in value (if applicable).
Learn more >> Can You Lease a Car With Bad Credit?
Pros and Cons of Leasing a Car
Leasing can be an appealing short-term option if you need a car but want to avoid a car loan. But when your lease ends, you must return the car, while you own the car once you've paid off a car loan.
Here are some of the pros and cons of leasing a car.
| Pros | Cons |
|---|---|
| Short-term commitment (usually 24 to 36 months) | No ownership stake in car |
| Potentially lower monthly payments than a car loan | Potential yearly restrictions on mileage |
| Possibly smaller down payment than a car loan | Leasing fees |
| Potentially fewer pricey repairs due to car being under warranty | Possible requirement to buy gap insurance in case the car is totaled before lease expires |
Learn more >> Should You Lease or Buy a Car? Here's How to Decide
How to Improve Your Credit
Working to improve your credit before applying for a lease can be a smart cost-saving move. Here are some ways you can improve your credit to get ready for a car lease:
- Make all debt payments on time. Making timely payments on credit card bills and other debts can go the furthest to help your credit. Why? Payment history is the most important factor in your credit score, representing 35% of your FICO® Score.
- Pay down credit card balances. Reduce balances on credit cards for a potentially quick boost to your credit score. The amount of debt you owe makes up 30% of your FICO® Score, and your credit utilization rate on revolving accounts such as credit cards is a large part of that calculation.
- Hold off on applying for new credit. Applying for new credit can ding your credit score slightly due to the hard inquiry that will appear on your credit report. Avoid doing so if you're getting ready to apply for a car lease.
- Dispute inaccurate information on your credit report. You have the right to dispute information on your credit reports. Inaccuracies on your credit report can pull down your credit score.
Frequently Asked Questions
Yes, you can build credit with a car lease, just as you can with a car loan. But a car lease benefits your credit scores only if you make on-time payments and the leasing company reports your payments to the three credit bureaus: Experian, TransUnion and Equifax.
Yes, a car leasing company runs a credit check before approving your lease application. Your credit score is likely the primary factor a leasing company considers when reviewing your application.
Because leasing a car typically comes with lower monthly payments, it may be easier on your budget in the short term to lease a car. However, you may have more options when financing a car, especially if your credit is less than stellar; credit requirements may be more strict for leasing a car.
The Bottom Line
Leasing a car may be an ideal option if you don't want to commit to a car loan. However, it might be tougher to qualify for a car lease because the credit requirements often are stiffer. Before shopping for a car lease, check your free credit report from Experian and your FICO® Score to see where your credit stands.