What credit score is needed to lease a car?
Before you drive to the dealership to take home a new car, make sure you know the answer to this question.
Your credit score is an important factor when it comes to a lease. Read on to learn what credit score is needed to lease a car and how you can improve your credit to get there.
What is a car lease?
A car lease is a type of a loan. When you lease a car, you are essentially renting the car for a monthly fee for the term of the lease. At the end of the term, you can buy the car for the calculated buyout price or turn it back in.
When you purchase a car instead of leasing it, you own the entire value of the car. Whether you pay in cash or apply for a loan, once you pay it off, you own the car. The car you’ve paid for is an asset in your name. You can keep it to keep driving without payment or sell it.
At the end of a lease, on the other hand, you have nothing but several years of payments made (and an improved credit score if you always made those payments on time).
What credit score do I need to lease a car?
If your credit score is 740 or above, your score is considered excellent by most lenders. They will likely offer you a lease with the best rates.
According to LeaseGuide.com, a score between 680 and 739 is considered prime and will be approved. Scores from 620-679 are “near prime” scores. People with these scores will likely be approved but might incur a higher interest rate.
Scores below 619 classify you as a “subprime” borrower. You will have to pay a much higher rate if you are approved at all.
BadCredit.org suggests that the typical minimum credit score to be approved for a lease is 620; the best rates are available for lessees with credit scores above 660.
Should you lease a car at all?
Before you sign on the dotted line, be sure a lease makes sense for your financial situation.
Buying a new car every few years does not make financial sense. The biggest loss of value happens when you drive the car off the lot.
Unlike a home, which usually goes up in value over time, a car only goes down in value. This is why a car is considered a depreciating asset. However, if you were to buy a lightly used car instead of a new one, you don’t have to worry about significant depreciation.
So if you like having a new car every two or three years, a lease is better than buying a car. Leasing puts that loss of value on the leasing company rather than your personal balance sheet.
Steps to improve your credit before applying
Whether you are looking to buy with a loan or lease a car, a higher credit score will give you better terms. You can take the car home with a lower down payment and will pay a lower interest rate.
Here are some steps you can take to improve your credit to improve your lease terms:
- Make on-time payments. The biggest factor in calculating your credit score is your payment history. Be sure to always make at least the minimum payment on time for all your monthly bills.
- Pay off credit cards. Your credit utilization is another big factor in determining your credit score. Paying off credit card balances is one of the fastest ways to improve your credit score.
- Avoid applying for new loans. This is a bit of a Catch-22. You have to apply for new credit to get a lease or a car loan, but applying for new credit lowers your score. Limit your applications to only times you need the credit card or loan. Don’t apply for every offer that comes along.
Improving your credit score is a slow process, but it is something you can do. My credit score has gone up over 115 points since I started tracking it, but it has taken years to build up the 830 credit score I have today. Always think long term when dealing with your credit.
Not sure what your credit score is? Here are five ways to check your credit score for free.
Make the best financial decision when leasing a car
Having a new car feels great. However, keeping up with the Joneses – or whatever neighbor got a shiny new Mercedes-Benz – shouldn’t drive your financial decisions.
Focus on the numbers instead. If a new car lease makes sense for you financially and you have the right credit score, nothing can hold you back.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|