How to Lease a Car with Bad Credit

Leasing provides a fast and suitable means of getting a car, especially when your finances are not in order. It is the best way to cut down on the hefty costs that come with purchasing and owning a new car, such as high down payments or monthly payments.

However, leasing a car when your credit score is poor can be quite a challenge. This is because most dealers require a credit report before they lease you a car. So, how can you get to work or move around, especially when there are no reasonable means of public transport in your area?

Don’t worry; this article will dive into the details of how to lease a car with bad credit. Read on to find out more.

Factors to Consider Before Leasing a Car with Bad Credit

There are a few things that you should keep in mind before you lease a car with bad credit. Some of them include:

1. The Annual Percentage Rates

Every car lease agreement comes with an annual percentage rate known as the money factor or lease rate. These rates may be significantly higher when your credit rating is low, which drives up your monthly lease payment costs.

You should make inquiries beforehand about what your money factor will be before leasing a car with bad credit. This will help you get rid of expenses that you could avoid.

2. Vehicle Choice

The type of car that you choose plays a crucial role in determining whether your lease deal will be approved or rejected. You should consider picking a vehicle that falls within your budget or one for which you can easily make payments for.

Many manufacturers offer vehicles with varying types of features at different price ranges. You can decide to sacrifice a few luxury features, such as heated leather seats, so you can lease a car at a reasonable rate.

3. Your Credit Score

You should figure out what your credit score is before leasing. Of course, having a good credit score helps, but there are still some options if your credit score is poor. You can use one of the free credit score-checking tools available online to know where you stand. Alternatively, gradually improve your credit score before searching for a suitable lease deal.

4. Mileage Limits

You should check if the car you want to lease has any mileage restrictions. Most auto leases have annual mileage caps, which you’re not supposed to surpass. Exceeding these mileage restrictions will make you incur additional costs for every extra mile. 

6 Steps for Leasing a Car with Bad Credit

Lease a Car with Bad Credit

Leasing allows you to own a car for a set period of time, typically 2-4 years, or until you can afford to purchase one. Let’s look at some of the steps you can follow if you don’t know how to lease a car with bad credit.

Step 1: Budgeting

Determining the amount of cash that you’re willing and able to spare every month is a key step in the car leasing process. You should create a budget and set aside funds for the whole process. During this period, you can use free online car affordability calculators to estimate how much it would potentially cost you to lease a car.

Weigh this cost with that of purchasing a new model to determine which one will be more favorable to you. You should also factor in the cost of monthly insurance because it will contribute to the total leasing costs.

The majority of car lenders will need you to comprehensively cover a vehicle that you lease since it is a legal requirement for any person that drives. However, car insurance premiums differ depending on your credit score, place of residence, and the vehicle you choose. You can compare the monthly car insurance premiums of different insurance companies first and pick the one that offers you the best deal.

Step 2: Choose a Vehicle

Once your budget is ready, you can scout different dealerships to see which vehicles they have in stock. Remember, not all dealerships have leasing programs in place, so that should be the first thing you inquire about when you arrive at any of them.

Not every vehicle can be leased to you when you have a poor credit rating. However, that should not stop you from comparing the options available. Examine the performance and features of each vehicle to determine which one is right for you.

Step 3: Apply for the Car Lease

Next, you can apply for a car lease at the dealership you have chosen. In this step, your potential lender may request that you submit your financial documents, such as your most recent bank statement and your credit report.

These documents are used to authenticate your employment history and determine if you can settle your monthly lease payments. You can still negotiate various aspects of your lease contract, such as the lease rate, monthly payments, and down payments, to get the best deal possible. If your dealer can provide waivers or fee reductions, then that would be great.

It is important to find out your credit score prior to applying for a lease to avoid being rejected due to a bad score. If possible, you should build up your credit score to at least 600 before approaching any dealership.

Step 4: Approval and Signing a Contract

If your credit score is within the acceptable range for leasing, you should be able to get your new vehicle on the same day. Once you pick a car and agree with the dealer, they will offer you a contract. Go over the contract keenly to confirm that the terms indicated on it are similar to what you agreed to verbally.

Review everything, from the security deposit to the monthly lease payments, lease rates, and any additional fees. If one of them differs from what you had agreed to; do not sign the contract. Ensure that your dealer adds a “buyout clause” that will enable you to purchase the vehicle when the lease period expires.

If the contract looks accurate, then you can sign it and make a down payment for your new vehicle so you can leave with it. However, you should not be pressured into signing a contract that has discrepancies.

Step 5: Making Your Lease Payments

It will now be up to you to continue making monthly payments for your vehicle. You will also be responsible for settling the insurance and maintenance costs. Try as much as possible not to skip a payment, as this might ruin your credit score.

Step 6: Returning the Leased Car or Buying it

Finally, you will be required to return the vehicle to the dealer as soon as the lease period expires. However, you can opt to purchase the car if a “buyout clause” is included in your lease contract.

Hand the car back to the dealer as soon as possible to avoid incurring extra costs that are charged when you go over the mileage or deadline restrictions.

Tips to Improve Your Lease Approval Chances

It is not that easy to get your lease approved, especially if you have a bad credit score. However, there are a few tips that you can use to improve your chances. Below are some of them.

Have a Cosigner

Obtaining a cosigner is one of the best ways to expedite the approval of your lease. If you know someone with a good credit score, you can ask them to cosign the lease for you. Cosigners act as a fallback in case you fail to pay your lease.

They share the responsibility with you, which makes it easier for the leasing company to approve you. Additionally, they can help you get a better deal with lower interest rates and more favorable terms.

Make a Sizable Down Payment

Paying a huge sum as a down payment helps show the lender that you’re willing to pay off the lease. This is usually referred to as capitalised cost reduction. It subsequently reduces the monthly payments that you make to the leasing company.

How can you achieve this? By starting to save earlier once you’ve decided that you’re going to lease a car. You can set aside some funds every month so that you have a significant amount to use as a down payment on the material date of the lease.

Choose a Shorter Lease

Reducing the lease contract period will improve your chances of the lender approving your lease. Why? Because you will be indebted to the lender for a shorter period of time. This will lower the lending risk for them.

Lease Transfers

If your bad credit score hampers your chances of getting a lease, you can opt for a lease transfer. This is where you take over a lease from someone who decided to end theirs earlier. However, you will still have to honor the original lease terms. This includes completing any pending payments that were left.

Taking over a lease reduces the initial cost that you incur when leasing a car. It also improves your approval chances significantly.

Improve Your Credit Score

Improving your credit score can be the last resort when you fail to secure a lease. Although it may be difficult to do so when you are facing financial difficulties, you can concentrate on removing any inaccurate information, such as incorrectly listed debts, that damages your credit report.

Explore Different Alternatives

Although it may be tempting to sign a lease agreement as soon as you find a leasing company that accepts you, it is always a good idea to look into all of your options. This will ensure that you don’t get a raw deal.

Look around and compare the costs of leasing a car with bad credit from different lenders and their leasing terms before settling on one.

Select a Low-Cost Vehicle

Go for a vehicle that costs less or a used one to get accepted easily if you have bad credit. Used or cheap cars have lower down payments and monthly repayment costs compared to new ones. You can improve your credit rating by promptly making the monthly lease payments for this car.

Once your credit rating has improved, you can go for newer models. Another option is to approach dealerships when they are trying to clear out older models so that they can restock with new ones. Typically, this happens at the end of the year and is the best time to have your lease approved.

What is the Minimum Credit Score Required to Lease a Car with Bad Credit

The credit score you need to lease a car with bad credit will differ from one dealership to another. A credit score of 680 and above, normally referred to as prime, will be sufficient to get you a good lease deal.

On the other hand, a credit score ranging from 620 to 680, also referred to as “non-prime,” is still acceptable. However, you will struggle to get approval. If you fall below the 600 mark (subprime), you will be required to leave a security deposit before you can lease any car.

Why is your credit score so important? Your credit score signifies the amount of risk that your lender will bear when they lease the car to you. The higher the credit score, the lower the risk they will face, and vice versa.

Does Car Leasing Affect My Credit Score

Leasing a car can affect your credit score either positively or negatively. It all depends on how you make your monthly payments. Consequently, making your monthly payments promptly increases your credit score gradually over time.

Missing your monthly payments not only puts a dent in your credit score but also makes it difficult for you to access car leases in the future. Defaulting on the payments will potentially cause you to be blacklisted by credit facilities.

Final Verdict                       

A bad credit score is normally a hindrance to leasing a car. However, it is not impossible to get a car lease. The only downside is that you will have to settle for a different car than you wanted. Additionally, you will be required to make larger security deposits and monthly payments.

If you were wondering how to lease a car with bad credit, this post has all the information you need. Just save adequately and explore different options to get the best deal available.

Frequently Asked Questions (FAQ)

Is it Possible to Lease a Car when you have Bad Credit?

Yes, you can. However, it might be difficult for you to lease a new car with bad credit. You may have to settle for used cars which you can easily make monthly lease payments for. Most dealerships shun away from leasing vehicles to you when you have bad credit because it increases the risk on their end.

Will Car Leasing Affect Your Credit Score?

Leasing a car and making prompt monthly payments can positively impact your credit score. Failed or late payments, on the other hand, will only worsen your credit score.

What Credit Score Is Appropriate for a Car Lease?

A credit score of 620 and above is ideal if you want to lease a good car. Scores lower than 620 will only make it difficult for leasing companies to approve you.

Can You Lease a Car if Your Credit Score is 500?

Yes, you can. However, you will have to part with a huge sum of cash initially that will serve as a security deposit or down payment. Additionally, the monthly lease payments that you will make to the lender will increase.

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