Quick Answer
Leasing a car with bad credit is possible, but it often comes with higher financing costs, larger down payments or security deposits and less favorable lease terms. Comparing offers, strengthening your application and improving your credit before applying may help you qualify for better terms.
If you’re considering leasing your next vehicle, you may be wondering if bad credit could affect your ability to qualify.
While bad credit may make it more difficult to qualify for a lease, approval requirements vary by leasing company. Understanding how the leasing process works can help you decide whether leasing is the right option for you.
Can you lease a car with bad credit?
You may be able to lease a car with bad credit, but qualification requirements vary by leasing company. Most leasing companies and dealerships perform a credit check and consider your credit score when reviewing your application.
Leasing companies typically use your credit report and other financial information to help assess your creditworthiness and ability to repay the lease. Many also have minimum credit score requirements, although these vary by company and lease terms. If you qualify with bad credit, your lease may come with higher costs.
If you’re approved, you may receive:
- A higher money factor or other financing charges
- A larger down payment or security deposit
- Higher monthly payments
- Less favorable lease terms
- Fewer financing or leasing options
Because every leasing company has different approval requirements, it can help to compare offers from several companies before making a decision.
When you find the right dealership and the car you’d like to lease, you’ll need to contact the dealership. Consider test driving the car and making sure it’s in good working condition. Opting for a car without some of the premium features can help you keep the cost down.
What credit score do you need to lease a car?
There isn’t one minimum credit score required to lease a vehicle. Each leasing company sets its own requirements, so approval standards can vary.
In general, borrowers with stronger credit may qualify for lower financing costs, lower monthly payments and more favorable lease terms. If you have a low credit score, you may still qualify, but the offer could cost more.
Along with your credit score, lenders may also review your:
- Credit history
- Payment history
- Debt-to-income ratio
- Employment history
- Proof of income
- Monthly debt obligations
According to Experian, a good credit score for leasing a vehicle is 670 and higher. These prime scores make up 65% of vehicle financing. Credit scores 501 and lower are considered subprime, and make up less than 17% of vehicle financing.
FICO® Auto Scores are another way car dealerships determine creditworthiness. The scores range from 250 – 900, which is a slightly different bracket than the three major credit bureaus.
How to qualify to lease a car with bad credit: 6 tips to help.
To help improve your chances of leasing a car with bad credit, consider showing proof of income, making a larger down payment or security deposit, applying with a co-signer and taking time to improve your credit. While approval is not guaranteed, these steps may strengthen your application, depending on the leasing company’s requirements.
1. Show proof of income.
Leasing companies may ask for proof of income to help determine whether you can afford the lease payments.
You may need to provide bank statements, recent pay stubs and tax returns if you’re self-employed.
2. Make a larger down payment (or higher security deposit).
A larger down payment may lower the amount you need to finance. That may reduce the lender’s risk and improve your chances of approval.
Depending on the lease, a large down payment may also:
- Lower your monthly payments
- Reduce the amount financed
- Help you qualify for better lease terms
Depending on the lease program, some leasing companies may require a higher security deposit.
3. Add a co-signer.
Applying with a co-signer who has strong credit may strengthen your application. A co-signer agrees to share responsibility for the lease. That added security may make some lenders more willing to approve your application.
Because a co-signer shares responsibility for the lease, missed payments or default may affect both your credit and your co-signer’s credit.
4. Consider a one-pay lease.
Some dealerships offer a one-pay lease, where you pay the full lease amount up front instead of making monthly payments.
This option isn’t available everywhere, and it requires a significant amount of cash. Depending on the leasing company, paying upfront may affect the financing terms you’re offered.
Before choosing a one-pay lease, review the lease agreement carefully so you understand what happens if the lease ends early or the vehicle is totaled.
5. Look for subprime or special financing programs.
Some lenders and dealerships offer leasing programs that may be available to borrowers with lower credit scores.
These programs may make it easier to qualify for financing, but they often come with higher financing costs, larger deposits, or less favorable lease terms.
Before accepting an offer, compare several financing options and understand the total cost of the lease.
6. Take time to improve your credit first.
If you don’t need a vehicle right away, taking time to improve your credit score may help you qualify for better lease terms later.
Some healthy credit habits include:
- Making payments on time
- Paying down debt
- Keeping credit card balances low
- Reviewing your credit report for errors
- Limiting new credit applications
Building stronger credit takes time, but even small improvements may help you qualify for more favorable financing terms in the future.
What to watch for when leasing with bad credit.
Leasing a vehicle with bad credit may increase your total leasing costs. Before signing a lease, read the agreement carefully and make sure you understand every fee.
Be sure to review:
- Higher financing costs or money factors
- Larger down payment requirements
- Higher security deposits
- Mileage limits
- Wear-and-tear charges
- Early termination fees
- End-of-lease purchase options and conditions
The Consumer Financial Protection Bureau recommends reviewing financing terms carefully so you understand the total cost before signing an agreement.
Is it easier to lease or buy a car with bad credit?
It depends. Neither option is always easier, since approval requirements vary by lender and dealership. In some cases, buying a car with bad credit may be easier because more financing options may be available, including loans for used vehicles.
Leasing often comes with lower monthly payments because you’re paying for the vehicle’s depreciation instead of its full purchase price. However, if you have bad credit, you may receive less favorable lease terms or find it more difficult to qualify.
Buying a car may come with higher monthly payments, but you’ll build ownership as you repay the loan. Financing a used vehicle may also help reduce your overall costs.
Whether you choose to lease or buy, comparing offers and understanding the terms can help you make an informed decision.
Alternatives to leasing a car with bad credit.
Alternatives to leasing a car with bad credit include buying a used vehicle, applying for a car loan, checking for preapproval, saving for a larger down payment, improving your credit before applying or using car-sharing services if you only need transportation occasionally.
Buy a used vehicle. It may be easier to qualify for a car loan than a car lease if you have a low credit score. Since borrowers are responsible for the depreciation of the vehicle, auto loan lenders may be more willing to approve those with low credit. You’ll also own the car after you complete your loan payments, which gives you an asset you can sell in the future.
Consider a car loan. Some lenders offer bad credit loans or financing options for borrowers with fair or poor credit. Compare interest rates, fees and repayment terms before accepting an offer.
Check for preapproval. Some lenders offer preapproval or prequalification, which may give you an estimate of the financing you could qualify for before you visit a dealership. Depending on the lender and the process used, this may involve a soft or hard credit inquiry.
Save for a larger down payment. A larger down payment may improve your financing options and reduce your monthly payment.
Improve your credit first. If your transportation needs allow, spending time improving your credit score before applying may help you qualify for more favorable financing or lease terms in the future.
Car-sharing services. Rent-a-car or ridesharing services may be a good short-term solution if you don’t need to travel by car on a frequent basis.
Final Thoughts
It may be possible to lease a car with bad credit, but your credit score, credit history, proof of income and overall finances can all affect your approval and lease terms.
Before you apply, compare offers from multiple leasing companies, review the total cost of each lease and make sure the monthly payment fits your budget. Whether you choose to lease a vehicle, finance a purchase, or wait while you improve your credit score, understanding your options can help you make an informed decision about your next vehicle.
DISCLAIMER: This content is for informational purposes only and should not be considered financial, investment, tax or legal advice.
