A new car lease lets you drive a better vehicle and spend less on your monthly payments than purchasing the same set of wheels outright. That's because when you lease a car, you only pay for its depreciation and any fees and taxes, not the cost of the car itself. While leasing can be a financially savvy option for people with limited budgets, this option isn't available for everyone. As with purchasing a car, your credit score matters. Read on to learn the necessary credit score to lease a car.
Ideal Credit Score for Leasing a New Car
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The average credit score for people leasing new cars in the third quarter of 2019 was 725, according to Experian. Don't worry if your credit score isn't quite that high. The report also noted that 22% of people securing new car leases had credit scores below 660. However, your credit score should be at least 680 for some of the better new car leasing deals.
Dealers aren't as discerning when leasing used cars. That's because the value of a used car, and thus the lease value, is much lower. Experian notes the average credit score for leasing used cars in 2019's third quarter was 662. That's more than 60 points lower than the average score for new car leases.
A good credit score shows a car leasing company that you are a safe financial risk. People with good credit scores have a history of making on-time payments in full. If your credit score is low, you'll need to convince a leasing company you're worth taking a risk on.
What Else Do Lease Companies Consider?
Your credit score is one of the most important things your lease company considers. However, it's not the only thing that matters.
Leasing companies also consider your income. Even if you have bad credit, they'll believe you can comfortably afford your lease payments if you make good money. Ideally, leasing companies look for applicants with steady employment. If your well-paying job is brand new, leasing companies may worry you won't last past your probation period. The longer you've worked for the same company, the better.
Existing payment obligations also matter. The more current loans, credit cards, and regular bills you have, the more wary a leasing company will be.
Leasing firms also examine how you've handled debt in the past. Past behavior is one of the indicators of future behavior. If you've missed payments or paid late before, a new leasing company may worry these bad habits will follow you.
Finances aside, other lifestyle factors will also make you a prime candidate. Leasing firms prefer applicants with good driving records. This stands to reason because a good driver is more likely to return a vehicle in good condition at the end of the lease term. Married people with families who live in the suburbs are also viewed more favorably than singles living in the city.
How Your Credit Score Impacts Leasing in the Real World
A good credit score makes leasing a car easy. This magic number proves you're a safer risk, so you can expect red carpet treatment. You'll have your pick of leasing companies, unlike folks with lower credit scores who may end up facing rejection.
People with good credit also tend to get better leasing rates. Leasing companies feel confident that applicants with good credit scores will make on-time payments in full. They typically charge people with bad credit more to make riskier lease agreements worth their while.
People with good credit also enjoy greater flexibility. Leasing companies are more likely to negotiate with applicants with good credit since there's little risk involved. While people with poor credit scores have limited options, people with good credit scores can customize their agreements. For example, someone with good credit could extend their lease agreement period or get a zero-dollar deposit deal.
That flexibility also extends to car choice. People with good credit usually have a wide variety of car options to choose from. However, options can shrink for people with bad credit. If your credit score is low, enter the dealership with an open mind and know you may need to settle for your second choice. Keep in mind that you can improve your credit with on-time payments, which could help you when you're ready to lease your next car.
Ways to Improve Your Credit Score
While bad credit won't necessarily hold you back from leasing a car, a good credit score will give you the most favorable leasing conditions. Thankfully though, you may be able to improve your credit score before applying for a lease.
Make sure your credit score is accurate. Mistakes are probably more common than you think. More than a quarter of people's credit reports contain at least one error adversely affecting their scores. Request a credit report and look for any problems. Check that your name, address, and Social Security number are accurate and that your credit file is complete and correct. Ensure there are no debts more than seven years old and that all accounts and debts are your own. Contact the credit bureau and the organization supplying incorrect information to remedy mistakes.
Maxed out credit cards do your credit score no favors. Paying off your cards will boost your score. Financial experts suggest your credit card balance should be no more than 30% of the total credit limit. Keep the card open though, even if you don't use it much. Once you cancel a card, it can't boost your score.
If you don't need a car straight away, adopt good financial habits to turn your credit score around. Start paying your bills on time every month. Establishing direct debit or setting reminders on your phone will help you ensure bills aren't missed.
At Kings Toyota, we make buying or leasing a new car easy with at-home financing. Chat with our deal manager over the phone, complete your paperwork electronically, and get your new wheels delivered to your door. Complete our online contact form to learn how to lease a car the easy way with Kings Toyota.