How to lease a car with bad or no credit BF Blog

How to lease a car with bad or no credit

The journey to obtaining a new or used car can be easy or difficult depending on how much you are able to spend on the auto loan payments, your credit score, and how much you can afford to put towards a down payment. Most people start by looking at the type of car they can afford and then work their way back to the financing of the vehicle. Finally, they look at their current credit score. This is how my son approached buying his second car.  However, how to purchase a new car turned out to be how to lease a car with bad or no credit.  Let’s explore this in more detail.

The Search For The Car

When my son’s old clunker breathed its last breath, we decided it was time to purchase a new car.  He had just graduated from school and had obtained a very good job. So, it was time to consider a better car. As a family we began visiting various car dealers for his perfect car. This was a great learning experience for him in how the buying process worked. He was able to see firsthand the types of sales pressure from each of the dealers.  He was able to see how they would try to convince you to buy something you did not want or could afford. However, once we settled on the type of make and model.  It was time to negotiate the terms with the car dealership.

From Buying To Leasing

After we picked out the car with all the bells and whistles that my son wanted it was time to sit down with the finance manager.  After running a credit check it was determined that my son had a low credit score on his credit report.  He asked if we were willing to co-sign the car loan. My husband and I declined for obvious reasons.  The finance manager then determined that a car lease might be a better option for my son than a car loan.

Therefore, he contacted the leasing company to come up with the best deal.  He then ran the numbers and determined that he could keep the payments within my son’s budget.  However, our son would need to have a substantial down payment because he did not have a good credit score. There are always consequences for having a bad credit score. It typically comes in the form of higher interest rates or higher down payments.  However, with the lease agreement in place, we collected the keys and my son drove home in his new vehicle. We left feeling we got a good deal despite his poor credit score.

How to lease A Car With Bad Or No Credit

Based on my son’s experience and my experience you can rent a car with bad or no credit. You just should be prepared to pay a higher down payment or a higher monthly payment.  The higher monthly payment is primarily due to a higher interest rate.  However, the monthly lease payments are typically lower than when you buy. Use Bankrate’s Auto Lease Calculator to get you started on determining what a car lease may cost. This is a good tool to determine if a lease will fit your financial situation.

The Advantages Of Leasing

  • Lower monthly payments and down payments.
  • Reduced repair costs.
  • Better factory warranty options.
  • Easy transition into a new car every 2-3 years.
  • Drive higher-priced vehicles for less.
  • The ability to build credit with on-time payments.
  • You are not locked into a long-term loan agreement.
  • Some leases offer tax advantages for businesses.
  • The best advantage is when the lease ends so does your obligation.

The Disadvantages Of Leasing

  • No equity because you don’t own the car.
  • Possible early termination liability.
  • Potential end-of-lease cost for excess wear and tear.
  • Charges for using extra miles.
  • You have no trade-in if you wish to purchase another car.

Improving Credit Scores For Future Purchases

Increasing your credit scores requires some form of credit.  It should be in the form of a credit card or a loan. What is the minimum credit score to lease a vehicle? Per, the typical minimum for most dealerships is 620. However, a score of 680 or better will afford you the best lease offers. A lower credit score will still give you a chance of obtaining an offer, but your down payment and salary will have to be factored in.  Hence, you will probably have to pay a higher interest rate and down payment. Therefore, you should make every effort to improve your low credit score. As of September 2021, the average credit score was 714, per Experian.  This should be your goal for all future purchases.

A Great Way To Improving Your Low Score

  • Make credit payments on time to build a good payment history.
  • Keep your utilization under 10%. Having large balances hurts your credit score.
  • Do not close any credit tradelines to maintain a credit history.
  • Check your credit report for errors with all three credit bureaus.
  • Ask a family member to make you an authorized user on their credit cards.
  • Have diverse credit mix i.e., credit cards, loans, mortgage.
  • Do not open a lot of new credit accounts in a short period of time.

The good news is that the above steps will go a long way to reducing higher rates when leasing or purchasing a car or opening other lines of credit. Also, paying the lease payment on time  will build credit too.

There Are Options to Lease With No Credit

When you have absolutely no credit in which you can lease a car, you have very few options.  As part of your car financing, they will look at your employment history and income. You may have to pay a higher down payment or ask a family member or friend to co-sign the lease. A better option to consider might be to take over another lease.

The large down payment may require you to save a little longer. However, since the down payment for leases is less than what is needed to purchase a vehicle, this may still be a great way to own a car.

Having no credit verse having a low score means you may need a little help in obtaining a car lease. Getting someone to co-sign requires them to be legally obligated to pay off the loan should you be unable to do so. This was not something I was willing to do because I got stuck once already and vowed never to do this again. I was only on the hook for a few thousand dollars but with a new car it is tens of thousands. Hence, if you do get a co-signer make every effort to make every payment on time.

Finally, the last option.  Taking over another person’s lease. This is a great way to lease a car. Most lenders are willing to do a lease transfer because the current lease may be in danger of defaulting. You become responsible for the remainder of the lease payments. You will still have to meet the leasing company’s requirements. However, If you do you will benefit from not having to provide a down payment to lease the car.

Pros for a Car Lease Takeover

  • Short-Term Commitment.
  • There could be an offer of cash as incentive to transfer the lease quickly.
  • Warranty Coverage is still available.
  • No down payment.

Cons for a Car Lease Takeover

  • Monthly Payments are non-negotiable.
  • Vehicle condition is as is.
  • Car may be approaching mileage cap.
  • No Equity in the car at the end of the lease.

Whether you choose to lease or buy a new or used vehicle it is always best to start your buying process with a good credit score. This will help you avoid high-interest rates or being completely denied for the loan. The inability to lease or purchase a much-needed vehicle can be disappointing at best or devastating at its worst when you need to care for yourself or your family.

Recap Of Your Options

  • Choose an affordable car.
  • Provide a larger down payment.
  • Ask a family member or friend to co-sign.
  • Be prepared to provide work history and income.
  • Look into a lease transfer.
  • Wait until you have improved your credit score to qualify for the desired lease rate.

Note: Most experts say that buying a car is a better financial decision in the long run.  The short term of the lease and the money factor may mean that leasing has the best deals even with the additional fees. Always choose the best option that best meets your needs.

If you choose to lease, you now know how to lease a car with bad credit or no credit. I have provided a pathway to leasing with bad credit and no credit. Hence, it may require more money for the downpayment, a co-signer, or you to consider a lease transfer. In the long run opting to improve your credit score is always a good option. Good luck on your journey to car ownership.

Additional Reading:

Importance of Adding Tradelines To Your Credit Report

How to Manage Credit Card Debt

What Hurts Your Credit Score The Most?

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