Do I need good credit to lease a car?
Good credit is normally required to lease a car. In most cases, a credit score above 680 or a lower score with a good repayment history on prior auto loans and leases is necessary to ensure the most attractive lease offers. To avoid being blindsided by a dealership telling you about your poor credit position, you should check your credit score before visiting the dealership, just so you are not taken aback if things do not go as expected in the showroom.
Credit scores measure risk
Leasing companies consider credit scores when assessing the creditworthiness of prospective lessees. The credit score is a numerical value used to rate the overall quality of your credit history and the timeliness with which you pay bills. In addition to providing basic account information, the detailed credit report even shows possible lenders the balances you carry on your accounts and the minimum monthly payments that you must pay. This helps lenders gauge your ability to successfully repay the loan.
Leasing restrictions for low credit scores
If your credit score falls below the benchmark leasing minimum of 680, you may be required to pay more interest on each monthly payment. This occurs when the leasing company uses a tiered system to determine interest rates. With a tiered system, the most creditworthy clients pay lower rates while buyers in less certain credit positions pay higher rates. In some cases, lessees with lower credit scores may be required to pay a security deposit or place a significant down payment to help offset the risk associated with the lease.
Bolstering a credit application
If you are in a position where getting a car lease is difficult or you cannot qualify for the best advertised lease offers, you may want to consider finding a co-signer with a good credit history who can bolster your application. A co-signer may be reluctant to include his name on the lease if he has any doubts about you making the payments. A co-signer is individually responsible for any payments you miss, and his good credit history could be sacrificed if you fail to pay as agreed.
Rationale for credit requirements
Leasing companies have strict requirements for lessees because a lease is a large financial investment made over a short amount of time. Additionally, the finance company has a greater interest in the vehicle than in a normal purchase agreement, as part of their leasing business is reliant on reselling vehicles once they are turned in at lease maturation. If a vehicle is returned with damage or driven more than the contracted mileage and you fail to pay the difference, the leasing company could struggle to turn a profit when the total cost of your lease is considered.