As you might probably know, car leasing is generally subject to credit approval. It means that auto leasing companies will assess your credit history and credit scores. A lot of people think that a bad credit score automatically disqualifies them from getting approved for a car lease. However, this is not necessarily true. 

Without any doubt, a credit score plays a crucial role in determining whether a person will get approved for a car lease. Although, car lease companies also take into consideration a number of other factors including your income, existing payment obligations as well as track record for handling debt. According to the credit bureau “Experian” an average credit score of customers starting a new lease was around 725 during the third quarter of 2019. The following sections of this article describe the effect of a credit score on lease car approval in a more detailed way. 

Some lease specialists say that no matter how bad your credit score is, you will probably find someone to lease you a car. Although, the lease rates that will be offered to you might be extremely high. Thus, you will be wondering whether it is worth it and whether it is a good personal investment over the long-run even if it is cheaper than buying a vehicle. 

Lease car requirements are known to be slightly more forgiving than those for buying a car. However, you still need a credit score of at least 620 for an auto leasing company to consider your application. As studies show, the best terms are reserved for those with a credit score above 700. Before diving into the topic, it is important to understand what car leasing actually means. 

What is a car lease? 

Leasing a vehicle is the same as renting an apartment. Leasing gives you a chance to drive a vehicle in exchange for monthly payments but it does not give you the right to own it (unless you buy it at the end of a leasing agreement). In simple terms, leasing allows you to drive a vehicle for a set period of time and this is a short-term responsibility unlike when you buy a car. 

You will still have to take care of the vehicle and maintain its condition as well as avoid inflicting too much wear and tear on it. Although, as mentioned above, at the end of the day the vehicle is still not yours. Normally, when you lease a new car, it comes with a three year warranty from the manufacturer. Thus, any problems or defects that arise during this three-year period will be handled by the dealer. But if you cause damage to the vehicle during a car accident, you will be responsible for fixing a car. 

What is considered a good credit score? 

Leasing a car might sound like a perfect idea as you get to drive a new vehicle for a relatively inexpensive monthly fee. However, car leasing might be extremely expensive for those with a bad credit score. This group of people will have to pay for the privilege if a credit score is bad. As far as you know, credit scores typically range from 300 to 850. Anothing above 740 is considered a very credit score. 

What does a credit score really mean?

If a person has an exceptional credit score of 800 or higher, he/she is thought to be the least risky borrower for a bank or other financial institution lending money. This high credit score means that a person has a long history of using credit responsibly. In addition to that, this person made credit payments on time and maintained low revolving balances on the credit cards.  

But in reality, the vast majority of people have an average credit score that is not even close to 800. According to recent studies, only 20 percent are proud to be in the 800 range. Although, as mentioned earlier, a bad credit score does not disqualify you from getting approved for a car lease. 

What should be done before applying for an auto lease? 

There are a lot of things that need to be considered before applying for a car lease and they are as follows: 

• Know your score: it is not recommended to apply for a car lease without having any clue what your credit score is. You should get a copy of your report three to six months before leasing a vehicle. It will give you a chance to fix any inaccuracies.

• Consider other factors that auto leasing companies loot at: lease specialists say that apart from your credit score, they typically look at your income, existing debt obligations as well as track record for handling debt. Additionally, you should not expect any difficulties with leasing a car if you are married, have a great driving record along with a credit score above 740. 

Auto lease companies normally divide their customers into groups including: 

• Prime lessees: you should not expect to get the latest models if your credit score is below 740. However, you are still considered a prime lessee if your credit score is above 680. You will not be seen as a risky borrower and most likely you will have your lease request approved. 

• Near prime lessees: the name for this group already tells a lot about lessees. You are almost safe for auto leasing companies but not quite well. If your credit score is between 620 and 680 you will fall into this category. If you are already in this category, you can either take a few months to pay down the balances on your credit cards or accept higher-than-average rates. Most probably, auto leasing companies will approve your application but you will pay a higher than average monthly fee because you are deemed to be a risky borrower.

• Subprime lessees: as was mentioned before, you might find a leasing company that will be willing to lease a car to you if your credit score is below 620. However, you have to keep in mind that you will pay much more than an average buyer would. In addition to that, you will be required to put down a security deposit. 

What if you do not have a credit history? 

Absence of a credit history might put you in a subprime category as you are an unknown commodity. One option for this group of people could be asking a relative or a friend to cosign on the lease with you so you can start a credit profile. You need to remember that if you miss lease payments, the negative history will appear on your cosigner's credit report as well. 

If you manage to find someone who will the cosign a lease agreement with you, your interest rate will most probably be lower. But it also depends on the cosigner’s credit score. There is also a non-traditional approach to lease financing that can be useful for people with a bad credit score. It is called lease swaps. This is an approach where a vehicle that is already being leased is transferred from one person to another. 

Depending on the time of the year, you might find an auto leasing company that will be desperately trying to move cars off the lot. In this case, companies might be willing to approve applications from people with a bad credit score. The end of the year is generally a good time to negotiate with auto leasing companies.  

Make sure you check radio commercials as this is their main communication tool and they might even announce that they are ready to work with people with a bad credit score. In order to lower your monthly lease payment, it is recommended to make the most significant down payment that you can. Make them want to work with you.