How to lease a car with bad credit

For many drivers, leasing a car provides an affordable way to get behind the wheel of a new car. Leasing comes with lower monthly payments and eliminates many of the other costs associated with car ownership — including repair costs, which the dealer will largely cover.

But to take advantage of the lower payments that come with a lease, you have to qualify. Leasing a car with bad credit can be more challenging.

What credit score do you need to lease a car?

When shopping around to lease a car, your credit score is an important part of the equation. Dealers treat customers with good credit scores to better interest rates — and if you have too low a score, they may not lease to you at all.

The credit score required to lease a car varies from dealership to dealership. Experian says a prime score is 661 to 780. Prime scores account for over 67 percent of total financing, according to the Experian report. Scores below that, ranging from 601 to 660, are considered non-prime, and scores between 501 and 600 are considered subprime. Just over 15 percent of financing is subprime.

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 lower prime range. This is because lessors also consider your current income, employment history and current debt obligations when you apply. The average credit score for people leasing vehicles as of 2023’s second quarter was 736, according to Experian.

While no credit score or a low score will not necessarily keep you from leasing, you may be required to provide a larger down payment or make higher monthly payments on a lease.

Drawbacks to 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. Your lease offer may also 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 you can afford.

No equity

When you lease a vehicle instead of buying one, you walk away with no equity at the lease’s end. This means you won’t have any trade-in or monetary value to apply to the purchase or a new lease. While this is true of all leases, with a higher monthly payment, you may not be able to save enough to afford another lease.

Possible restrictions

If you have bad credit, dealers may decide you can only lease vehicles within a given price range. And some dealerships may not work with you at all.

Ways to improve your chance of lease approval

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

1. Make a large down payment

We generally recommend against paying more than the minimum money down on a lease. It’s one of the car leasing mistakes you should avoid, since if you total a leased vehicle, your insurance will reimburse the lessor instead of you.

However, in this case, it could be a smart move. For one, a big down payment shows your potential lender that you are committed to paying off your lease. Making a down payment on a lease is called capitalized cost reduction. The more money you provide in a down payment, the lower your monthly payments will be. These smaller payments may give the lender more confidence in your ability to keep up.

2. Get a loan co-signer

Another way to gain approval is by getting a co-signer. A co-signer adds a layer of security for the lessor. It can also help establish credit. The co-signer shares responsibility for the lease and their credit will be affected if you do not pay. In addition, if you fail to make lease payments, your co-signer will be responsible for doing so.

If this is your preferred route, choose a trusted family member or friend with a stronger credit history than you.

3. Aim to lower your debt-to-income ratio

Lowering your debt-to-income ratio is also a green flag for leasing companies. Your debt-to-income ratio, or DTI, is your monthly payments divided by your monthly income.

As someone with poor credit, you want to lower this number by paying off debts, refinancing to a lower rate or increasing your income.

You might also consider a debt consolidation loan. These allow you to combine multiple debts into a single payment, making them easier to manage.

You can use a debt-to-income calculator to find out where you currently stand.

4. Shop around

When looking for a car lease, shop at several dealerships and leasing companies to see which offers the best deal to customers with bad credit. Given that each dealership evaluates lease offers differently, you could receive a more favorable lease offer than you expect — and potentially at a lower rate.

You can also try to negotiate the terms of your lease, though you may have less leverage when you have bad credit. Consider negotiating the vehicle’s buyout price, which is the price you would pay to buy the car at the end of the lease contract. This price generally cannot be negotiated after the lease ends, so address it upfront if you think you may want to buy the car.

You can also try to negotiate the vehicle’s annual mileage allowance if you know you will be driving a lot.

5. Work to improve your credit score

There are several ways you can improve your credit score fairly quickly:

• Report rent and utility payments. Self-reporting alternative data like these bills can help boost your score if you show steady payments.
• Pay off any debt you can. Lowering your debt-to-income ratio can help improve your score.
• Look into getting a secured credit card. These offer a small line of credit for a security deposit, which can help build credit without risking high amounts of debt.
• Request a credit limit increase. Having more credit available can lower your credit utilization ratio, boosting your score.
• Become an authorized user on someone else’s credit card. If the primary account holder has a good history of making payments, that can reflect well on an authorized user’s credit score.
• Dispute credit report errors. This can be a fast way to improve credit, as it may clear up any inaccuracies dragging down your score.

Other ways to lease a car with bad credit

There are a few other options to consider if the ideas above do not work for you:

• Lease transfer: A lease transfer may be an option if you cannot get a lease or a lease with favorable terms. Companies like SwapALease and LeaseTrader 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.
• Lease a used car: Another option is leasing a used car. Not all dealerships offer used cars for lease, so you may have to shop around to find a dealership in your area that offers this service. If you do, note all the terms and how much you will pay during the lease. You may find a better deal by purchasing a used car.
• In-house financing: There are also “lease here, pay here” dealers that offer in-house financing for cars they lease. The downside is that the leases often have a far higher price tag and steeper monthly payments. In addition, the lease payment terms are generally far from ideal — you may be responsible for covering car maintenance costs. The selection of cars available at lease here, pay here dealers may be older or more limited.

The bottom line

Although leasing a car with bad credit is possible, you may not receive a competitive lease offer. This could mean a larger down payment, higher monthly payments or leasing a car that isn’t your first choice.

However, you might get a better lease with bad credit by adding a co-signer, making a larger down payment and lowering your debt-to-income ratio. You can also look into other options like lease transfers, leasing a used car or in-house financing.

If you have time, taking steps to improve your credit score could result in a better lease agreement in the future. Shop around and try to negotiate the terms of your lease, no matter your credit score, to obtain the best deal possible.