Want to drive your dream car without fully committing? Leasing makes that possible. Unlike an outright purchase, a lease lets you make monthly payments to rent the car. Your rental typically lasts for 3 years or until the car hits the agreed upon mileage, whichever comes first. However, not just anyone can sign up for this arrangement. Leasing a car requires a much higher credit score than taking out a car loan. So, exactly what credit score is needed to lease a car? On the safe side, the answer is at least 620.
Keep in mind that the specific score you have will determine your leasing experience. So making sure your credit score is as high as possible prior to applying for the lease is a good idea, and there are some quick ways to improve your credit score within 30 days.
Understanding Lease Pricing
Before looking at credit scores, it is important to understand how lease pricing works. The lessor (often a car dealership’s finance company) bases a lease price on the car’s current worth, its predicted future value (residual value), and the length of your lease.
| Car Lease Pricing Example |
|---|
| The car you want to lease costs $40,000. You want to lease it over a three-year period. The dealership determines that its residual value will be $30,000 after three years. That means you must cover the difference of $10,000 with your lease payments. With no money down, the monthly payment for this car is $278 (not including interest or taxes). |
When you apply for a loan, lessors look at your credit score and financial information. They then determine the monthly payment you can afford, the interest rates you qualify for, and how much money you have to put down. Dealerships then add the finance charge, interest rate, and your down payment into the equation above.
Your credit score alone greatly influences your lease approval and the interest rate you receive.
Credit Scores For Leasing a Car
Credit Scores Above 740
What credit score is needed to lease a car at the best interest rate? Scores of at least 740. These scores are considered “super-prime.” If you fall into this category, you will enjoy the benefits above and a little extra. Your high credit tells a lessor that you deserve their lowest rate. Plus, the majority of leasing companies will not require a down payment from you. You can still make one to keep your monthly payments lower, but you do not have to.
Credit Scores from 680 to 739
Scores in this range are “prime.” If you have a minimum credit score of 680 and a steady income, you will have no trouble leasing a car. Expect the best interest rate if your score is above 700 and 1%-2% higher than the best rate if your score is between 680 and 699.
The monthly payment amount that car dealerships calculate includes interest payments. When you lower the amount of money going toward interest each month, you are left with a smaller monthly payment. This frees up your budget or makes it possible for you to lease a pricier car—a big perk of having a good credit score.
Leasing a car with a higher credit score also means you will keep most, if not all, of your savings intact. Based on your credit history, the lessor trusts you to meet your monthly payments, so you would not need to pay as much upfront.
Credit Scores from 620 to 679
Near-prime scores of 620 to 679 lead to higher interest rates. As long as you have a stable source of income, you should still have little trouble securing a lease. You will need to be flexible in the type of car you want to purchase. On average, if you have a score in this range, you will pay a 5% higher interest rate. This higher interest rate will raise your monthly payment and make it harder to afford a nicer car.
Credit Scores from 550 to 619
If you have a sub-prime score, many lessors will deny your application just based on your credit history. If you are approved, expect that the interest rate will be 10%-12% higher than the prime rate. Raising your credit score will help you to get a better offer, but if that is not possible, you have other options.
Credit Scores Below 550
Have a score of 550 or lower? You are generally out of luck unless you can bring your score up. Even if you do get approved, it will require a large down payment. You would be better off using that money to buy a used car than to take on monthly payments with an extremely high interest rate. If you are set on leasing, wait at least 30 days. Use that time to fix your credit by disputing errors on your report, negotiating late payments, and paying down debt.
Things to Consider When Leasing a Car
Shop Around: Lease application requirements will vary depending on where you go, so prepare to apply at different dealerships. Just because one place rejects you does not mean you are out of luck.
Be Flexible: You might have to accept that your dream car is just too far out of reach. Lease arrangements last for around three years. Consider leasing a more cost-effective car for those three years while you work on building up your credit. Being willing to lease different cars will make your search a lot easier.
Save Up: If you can make a sizable down payment, many dealerships will overlook your less than stellar credit. The money you pay up front will also lower your monthly payment, making you a lower risk lessee. How much you need to save will depend on the car you are looking at.
Get Personal: Most lease applications are made electronically, which does not give you a chance to make your case. Sometimes, talking to the dealership’s financial advisor will help you secure a better interest rate or at least get approved. You can explain why you have poor credit and provide assurance that you can meet the monthly payments. Bringing along character references can help. This method depends highly on where you are shopping.
Find a Cosigner: Find a family member or friend with good credit and ask them to co-sign your lease. Although they would not co-own the car with you, they would assume responsibility for payments if you failed to make them. This will deter some people, so do not be surprised if you are turned down.
Summary
So, what credit score is needed to lease a car? In practice, scores above 620 give you the best shot. However, with some ingenuity and legwork, any score over 550 has the potential to work. To make your leasing experience easy and less expensive, spend time raising your credit score before you go looking for you next ride. Building your credit score can take some time, but doing so will give you better options when leasing a car.
