What credit score do I need to lease a car?
Leasing a car is seen by many as a low cost, hassle free and low commitment to drive a new car. Just pay the monthly fees and after three years (for example) walk away or upgrade to a new one! As you are not buying the car, you do not pay nearly as much as you would if you had bought it either outright or with a car loan, although of course you do not end up owning a car at the end of it all.
You should consider carefully whether a car lease is a good idea:
- Cheaper in the short term
- No or low down payment (if credit scores are good)
- Get to drive a new (or almost new) car and/or a model you might not otherwise be able to afford
- Little or no commitment – as long as you make your payments and look after the car, you can walk away when the contract is over – no head-aches selling what is now an old car
- In the long run leasing is expensive as you do not own the car at the end of it (you generally end up paying 50%-60% of the full price of the car with nothing to show for it at the end)
- If you can no longer afford to make the payments then you can’t just sell the car
- If you look around there are some very good car buying deals, especially from private car sellers
Leasing a car becomes a very good idea if you use the car to run your own business, in which case you can often deduct the whole lease price from the company income for tax purposes.
I really want to lease a car!
Despite what cable TV advertisements may have led you to believe, leasing car is not as easy as it sounds, as car lease companies require you to have higher FICO scores than are needed for a car loan. This is because there is greater risk to the lease company due to the lack of a down payment and the lower overall value of the lease compared to a loan, resulting lower profit margins for the leasing company.
For this reason, car lease companies almost always consider scores under 640 to be sub-prime, and are likely to refuse such an application. This is not to say that it will be impossible to lease a car at lower scores, as if you look around, there are companies that specialize in such sub-prime leasing. You will however, almost certainly have to pay hefty down payment and settle for a higher monthly interest rate.
On the other hand, if you have a FICO score of above 700 you will be offered better rates and have a greater choice of car makes and models you can lease. If your FICO score is over 720, you will likely not have to make any down payment and will benefit from the lowest monthly interest rates.
By Douglas Crawford.