So, you’ve just finished analyzing the difference between buying and leasing a car, and you’ve decided to lease. Now what?
It’s time to check your credit.
As with all financial products, the best interest rates go to those with the best credit scores. Although a lease doesn’t come with an annual percentage rate like a car loan does, there is an interest charge built into your payment. Therefore, your credit score doesn’t only affect whether or not you’ll be approved for your lease, it could also determine the cost of interest on the lease.
And those with the best credit scores are more likely to have their credit applications approved. But do you need good credit to lease a car — or can a less-than-perfect score still qualify you?
Let’s find out.
Do I Need Good Credit to Lease a Car?
Although your chances of approval go up when you have good credit, you might not need perfect credit to lease a car. Experian releases a quarterly report called “State of the Automotive Finance Market: A Look at Loans and Leases in Q4 2017” and the latest data shows that consumers with a broad range of credit scores have been leasing cars. Here’s what the report says:
- Twenty-nine percent of new leases in Q4 2017 went to super prime borrowers.
- Around 48 percent of new leases in that time frame went to prime borrowers.
- Nearly 16 percent of leases in that time were held by nonprime borrowers.
- Subprime borrowers made up just more than six percent of car lease holders.
As you can see from the data, the number of leaseholders goes down along with the credit scores. That said, the fact that subprime borrowers had car leases at all shows that it’s possible to get a lease even if you don’t have the best credit right now.
Not sure where you stand in all this? Let’s take a look at credit score ranges and what words like “prime” really mean.
Leasing a new car? See if your credit is in good shape with Upturn Credit’s free tool!
Where Does My Credit Stand, Anyway?
Credit scores are important, but since you have more than one credit score (most of us have dozens of them), you may be just as well to keep tabs on the range your credit scores fall into. Below are the ranges for the two most popular credit scores (FICO® and VantageScore®):
FICO® Credit Score Ranges
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VantageScore® Credit Score Ranges
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Now, how about the terms lenders look at, such as prime, subprime, and so on? Here’s how Experian describes them in their State of the Automotive Finance Market report:
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Now, comparing these ratings to the statistics above, six percent of car leaseholders had credit scores in the 501-600 range. Again, it’s not anywhere near a majority, but it shows that leasing can be possible with bad credit.
But what if you could improve your credit? Could you get a better deal? The answer is most likely yes. It will likely take some effort on your part but is possible and here’s how to do it.
Prepping Your Credit to Get the Best Deal on Your Lease
There’s not much time to improve your credit if you need a car lease today. But if you’re able to wait a few months, you can start taking steps immediately that may improve your credit when you’re ready to lease. In fact, Experian recommends checking your scores and reports one to two quarters before you’ll need to run your credit application.
That might not sound like much time, but it may be enough to improve your score if you follow some of the steps below:
- Review your credit reports for errors.
- Dispute any mistakes you find on your credit report.
- Pay off any past due debt you might have.
- Make all of your payments on time for all of your credit accounts — payment history makes up 35 percent of your FICO® credit score.
- Pay down large credit card balances to improve your credit utilization, a factor that makes up 30 percent of your FICO® credit score.
- When you decide to shop for a lease, try to keep your search within a 14-45 day window. This is the amount of time within which you can typically submit multiple credit applications without hurting your score, as long as you stay within the same type of loan and for roughly the same amount.
Many consumers are flocking to leases to get into their next car — 29 percent of new car financing deals were comprised of leases in Q4 2017. If you find that this is the best route for you, start working on your credit score now to help ensure that your hopes of a new car lease become a reality.
Ready to get your hands on your dream car? Read this to get your credit ready.