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Leasing a car with bad credit

Two men sitting with car dealer, negotiating price
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For many drivers, leasing a car provides an affordable way to get behind the wheel of a new car, since the monthly car payment on a lease is often less than if you bought the same vehicle outright. But just as with a car purchase you have to qualify for a car lease. If you have poor credit, it could affect your ability to lease a car. Before applying, consider all factors and possible alternatives if you are leasing a car with bad credit. 

What credit score do you need to lease a car?

The credit score required to lease a car varies from dealership to dealership. At most dealerships, the minimum credit score you can have is 620; anything below that is considered subprime. Although many dealerships prefer a score of 700, you may still be able to get a leasing offer. 

The higher your credit score, the more favorable the leasing offer you will receive. However, you can still expect a good leasing offer with a credit score in the 670 to 739 range. The lower your credit score, the less likely you are to receive a good leasing offer, if you receive one at all. 

Your credit score is not the only factor dealerships will review when evaluating your lease application. They also will look at your current income, employment history and current debt obligations. 

What to consider when leasing a car with bad credit

Taking steps to improve your credit score will help you overall, but you can still potentially lease a vehicle before repairing it — just be aware of these potential pitfalls.  

High cost 

Having a low credit score could mean you will need to do more to qualify for a leasing agreement. For instance, the dealership may ask for a larger down payment upfront. Also, your lease offer may include a higher interest rate, known as a “money factor” or “lease factor,” in leasing terms. This could inflate the cost of your monthly lease payment beyond what your budget can afford. 

Vehicle restrictions  

Leasing a car has restrictions similar to renting a car, such as limited mileage per year. You have to turn in the car once the term of the lease ends and if you are over your allotted mileage you will have to pay a per-mile fee for the overage. And at the end you walk away with no equity in the vehicle, meaning you won’t have any trade-in or monetary value to apply to the purchase or a new lease. 

Ways to improve your chance of lease approval   

If you are set on leasing a vehicle with bad credit, there are a few things you can do to improve your chance of approval. 

Make a down payment 

To show your potential lender that you are committed to paying off your lease it is a good idea to make a down payment — known as the capitalized cost reduction. The more money you put down initially the lower that your monthly payment will come out to. Try and save up a larger sum prior to applying for a lease.  

Get a loan co-signer 

Another way to gain approval is by getting a co-signer. A lease co-signer brings an added layer of security to the lessor. The co-signer shares equal responsibility for the lease and will have their credit affected if you do not pay. If this is your preferred route be sure to choose a trusted family member or friend who has a stronger credit history than you.  

Aim to lower your debt-to-income ratio 

Having the intention to lower your debt-to-income ratio is also a green flag for lessors. Your debt-to-income ratio, or DTI ratio, is defined as your monthly payments divided by your monthly income. As someone with poor credit, you want to aim to lower this number. Use a debt-to-income calculator to factor this number. 

Shop around  

When looking for a car lease, shop around at several dealerships to see which dealership offers the best deal to customers with bad credit. Given each dealership evaluates lease offers differently, it’s possible you could receive a more favorable lease offer than you expect. 

Alternative ways to get a car when you have bad credit

If you cannot get a lease or a lease with favorable terms, a lease transfer may be an option. Companies like SwapALease.com and LeaseTrader.com specialize in pairing people who want to get out of a lease with those who want a lease. While lease takeovers still require a credit check to qualify, the terms could be more favorable without requiring a down payment. 

Another option is leasing a used car. Leasing used cars is not something all dealerships offer, so you may have to shop around to find a dealership in your area that offers this service. If you do, take note of all the terms and how much you will pay over the term of the lease. It’s possible you may find a better deal by purchasing a used car. 

The bottom line

Although it’s possible to lease a car with bad credit, you may receive a lease offer that’s less favorable than you anticipated. This could mean a larger down payment, higher monthly payments or leasing a car that isn’t your first choice. If you have time, taking steps to improve your credit score could result in a better lease agreement in the future. 

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor