Can You Lease a Car With Bad Credit?

It might be challenging to qualify for a lease with a low credit score. However, other car buying alternatives are available if you're denied a lease.

Forbes and the Statista Research Department report that the percentage of people leasing vehicles in the third quarter of 2022 had fallen from 30% in 2018 to 17%.

Kelley Blue Book has estimated that the reason for the decline is the price of cars is so high that even leases have a large monthly payment. Traditionally, people who leased cars saved around $130 a month in payments since leases are based on the price of the vehicle before its residual value.

Even though fewer people are leasing cars doesn't mean that you shouldn't try to get a lease.

What is the minimum credit score needed to lease a car?

The minimum credit score to lease a car is around 620, although some lenders may accept scores as low as 600. Some leasing companies offer special programs that don't require an excellent credit rating; these programs often come with restrictions and additional fees, so research is essential before signing any paperwork.

In addition to your credit score, you still need a steady income, proof of residency, and upgraded insurance to lease a vehicle. Furthermore, depending on the dealership and its policies, they may require additional information, like references from employers or landlords, to complete the application process successfully.

How your credit score affects car leasing

Credit scores typically range from 300 to 850, with higher numbers indicating better credit history. When it comes to car leasing, most lenders consider a score above 660 as "good," while anything below 600 is generally viewed as "bad" or "poor." Those who fall into the latter category may face challenges when securing favorable lease terms.

If you have an excellent credit score (typically above 720), you'll likely qualify for more competitive offers and lower monthly payments on leased vehicles. To understand where you stand before applying for a car lease, consider checking your free annual credit report from each major bureau (Equifax, Experian, and TransUnion).

Disadvantages of leasing a car with bad credit 

Some challenges you might face when trying to lease a car with bad credit include the following:

1. Higher interest rates

Those with lower credit scores may find leasing less affordable due to higher interest rates, resulting in increased monthly payments.

2. Larger security deposits

Having bad credit could also result in larger security deposits required by the leasing company. A bigger deposit serves as collateral for the lender if you default on your monthly payments.

3. Limited vehicle options

When attempting to lease a car with bad credit, expect limited vehicle options at dealerships since they are more cautious about extending leases to high-risk borrowers. You may not qualify for specific makes or models due to their price range or other factors related to your credit history.

4. Denial of a lease agreement

In some cases, having an average-to-low (620 or below) credit score might result in outright denial of a lease contract, which can be disheartening.

5. Co-signer requirements

If you need a co-signer, ensure you both understand the obligations. While this option can help secure the car lease, it could strain relationships between friends or family members acting as co-signers.

Understanding these potential challenges when attempting to lease a car with bad credit is crucial so that you can make informed decisions about your next steps toward securing transportation.

Tips for leasing a car with bad credit

If you have bad credit but still want to lease a car, here are five tips to consider when applying for a lease with bad credit:

• Find a co-signer – A co-signer will put the lender at ease, knowing that the co-signer can make the payments if you can't.
• Make a larger down payment - Putting more money down upfront shows the lender that you're serious about leasing the vehicle and reduces their risk in case of default. Plus, it lowers your monthly payments.
• Show proof of steady income - Lenders want assurance that you'll be able to make consistent payments throughout the term of your lease agreement. Providing pay stubs or other documentation proving regular income will demonstrate your ability and commitment toward meeting this obligation.
• Negotiate better terms - Don't hesitate to negotiate with dealerships or lenders on interest rates, fees, or even vehicle prices - every little bit helps. Despite a low score, you might find they're willing to work out an arrangement suitable to both parties. Shop around different dealerships. Negotiate based on the total cost (known as the cap cost) rather than the monthly payment.
• Selecting affordable vehicles - Choose cars within your budget, as lenders may be more likely to approve your application if the car is less expensive. Opting for a lower-priced model can increase your chances of getting approved.

5 ways to improve your credit score

Leasing a car with bad credit might not always be the best option and buying a used car outright or working on improving your credit score could be alternatives. Here’s how to work on your credit: 

1. Review your credit report

The first step to improving your credit is by understanding what criteria make up the credit score. Review your credit report for errors or discrepancies that may negatively impact your score. Ensure all reporting is in your name and not co-mingled with someone else's information.

2. Pay bills on time

Your payment history is 35% of your FICO credit score - lenders' most widely used scoring model. To improve it, ensure all bills are paid on time every month.

3. Reduce debt balances

Credit utilization ratio - the percentage of available revolving debt being used - accounts for 30% of FICO scores calculation. Reducing outstanding balances can significantly boost your rating over time.

Do this by creating a budget. Develop a practical spending plan that helps reduce unnecessary expenses while allocating funds towards paying off debts faster. And prioritize high-interest debts by focusing on paying down higher-interest loans or lines before tackling those with lower rates since they cost more money overall due to unpaid interest accumulating.

4. Limit new credit inquiries

Each time you apply for new credit, a hard inquiry is recorded on your report. Too many inquiries in a short period can lower your score and send a signal to lenders that you're experiencing financial difficulties. Limit applications for new credit accounts and only apply when necessary.

5. Maintain a healthy mix of credit types

A diverse combination of credit types - installment loans (like car loans) and revolving lines (like credit cards) - shows lenders that you can responsibly manage different forms of debt. Aim to maintain a balanced mix without overextending yourself financially.

Alternatives to car leasing with bad credit

Suppose you have poor credit and have difficulty obtaining a reasonable car lease. In this case, there are other choices that can help you get a vehicle without straining your finances. 

1. Buying used cars with cash

Purchasing a used car outright using cash is another viable option if your credit score isn't up-to-par for leasing deals. By saving money over time and buying used cars in good condition, you can avoid interest charges altogether while still enjoying the benefits of owning a vehicle.

2. Buy-Here-Pay-Here dealerships

Buy-here-pay-here dealerships cater to individuals with bad credit by offering in-house financing options without requiring traditional bank loans. While these dealerships allow people with bad credit to finance a car, interest rates and down payments are higher than bank loans.

3. A lease transfer

You might be able to swap a car lease from a friend or family member's name into your own.

4. Car sharing service

Bigger cities have car-sharing services that give you options for short-term car rentals.

5. A FINN car subscription

A FINN car subscription offers a solution for those who want access to a car without committing to long-term ownership or dealing with high-interest rates due to poor credit scores. You pay one monthly payment, covering everything from insurance and maintenance costs to roadside assistance. Browse through a selection of cars, get approved in minutes, and have it delivered directly to your doorstep.

Final thoughts

When buying or leasing a car, many options exist for those with bad credit. If you’re looking for an alternative to car leasing, learn more about a FINN car subscription.