Yes, you can be denied a car lease if your credit score is too low. While leasing a vehicle isn’t like an auto loan, your credit score is still a big factor in determining your eligibility for a car lease.
Approval Odds of Leasing With Bad Credit
Leasing companies tend to have high credit score requirements for their vehicles. Those with credit scores in the bad credit range may not qualify for a car lease, and they tend to have better luck in getting approved for a bad credit auto loan instead.
Generally, most lenders consider borrowers with a credit score below around 660 as having bad credit. Borrowers with credit scores between 501 to 600 are considered “subprime” by the credit bureau Experian.
In the second quarter of 2020, subprime borrowers accounted for only 5.8% of leased vehicles, according to Experian. Borrowers with credit scores below 500 only accounted for 0.29% of leased cars.
Bad credit borrowers don’t have the best odds when it comes to getting approved for a vehicle lease, but some do occasionally get the go-ahead. However, with a lower credit score, it usually means paying more for the car.
The Cost of a Lease With Poor Credit
Getting approved for a lease means meeting income requirements. Nearly every leased vehicle is brand new, so the payments can be pretty costly.
For subprime borrowers, the average lease payment was $476 a month in the second quarter of 2020, as reported by Experian. For borrowers with the best credit scores, the average lease payment was $467. That’s not that much of a difference, but these are just averages – your monthly payment could be higher or lower. The cost of a lease greatly depends on your credit score and the price of the car you’re looking to lease.
There’s also more to the cost of a lease than just the price of the vehicle. Instead of using an interest rate, leasing companies use something called a money factor, which is essentially the leasing version of an interest rate.
The better your credit score, the better money factor tier you’re usually placed in, and the less you’re charged to drive the car during the lease term. This means your credit score directly impacts how much you pay overall.
Additionally, bad credit borrowers who are approved for an auto lease may find themselves having to shell out one or more security deposits as a requirement. Security deposits tend to be the cost of one lease payment rounded up to the nearest $50. If your lease payment is $480, then your security deposit is likely to be $500.
The amount can vary between leasing companies, but it’s a good place to start so you can begin preparing. If your credit score is very low, you may be required to put even more money down.
Get a Car Loan Instead of Leasing With Bad Credit
When it comes to your next vehicle choice, having a lower credit score usually means you have a higher chance of being approved for a car loan over a lease. Since leasing companies have higher credit score requirements, it can mean a denial even if you have the income to pay for the vehicle.
If you’re set on leasing your next car, it doesn’t hurt to apply with a few different leasing companies. Although, working on your credit score can increase your approval odds. Additionally, auto loans can actually improve your credit if you manage it well. Even then, though, having bad credit can make finding a lender a challenge.
Not all car lenders can work with bad credit. Those that do are called subprime lenders, aptly named after the credit score range they cater to. These lenders are signed up with dealerships that have special finance departments. Finding a dealer with these resources can be like looking for a needle in a haystack, but we already know where they are.
Here at Auto Credit Express, we’ve created a network of dealerships with subprime lender connections. We match borrowers to these dealers at no cost. To get started and help us look for a dealership for you in your local area, fill out our auto loan request form.