What Credit Score Do I Need to Lease a Car?

August 3rd, 2010 | Author:

For most people, car leasing is seen as a more affordable way of driving a car compared to buying one. Also, compared to car loans, the qualification is much easier and the monthly payment for a leased car is much lower. However, car leasing requires a higher credit score compared to car loans, therefore, a lessee should know what the required credit score for a car lease is before leasing a car.

The reason behind the higher credit score needed to lease a car is the nature of a car lease. For most financing companies, approving a car lease is seen as a higher risk than approving a car loan. This is because a down payment is normally not required and the overall amount of the lease is usually much lower compared to a loan. The usual value of the lease is slightly higher than fifty percent of the real value of the car. Because of the higher risks and lower profitability for financing companies with regard to leasing, the credit score for a car lease is high.

Before a lease gets approved, the dealer and his finance company will review the lessee’s FICO credit score. This credit score determines the interest rate of the lease or even the approval of the lease itself. For this reason, a lessee has to know his credit score from the three credit rating agency. Knowing his credit score, as well as the minimum credit score for a car lease will help a lessee evaluate his options.

The average minimum credit score for a car lease is 640. Anything below this is considered subprime by many leasing agencies and will prove to be a problem for a person looking for a car lease. Normally, if a car lease does get approved for scores below 640, a high down payment will be required as well as a higher monthly interest rate. This will defeat the purpose of leasing a car for lower expenses.

For better rates, a lessee must strive to have a credit score higher than 700. Many leasing agencies will require no down payments as well as lower interest rates for lessees with a credit score beyond 720. This is the best credit score needed to lease a car.

Unlike a car loan, the advantage of leasing for a lessee is the contract which stipulates that the car has to be returned to the dealer or leasing agency after a set amount of time. Because of this, the lessee does not have to worry about having a hard time selling the car after it is considered old. Coupled with the significantly lower cost of a lease compared to a loan, a lease is the perfect solution for someone wanting to temporarily drive a car for a cheap price. However, he must always remember that the credit score for a car lease is much higher than those for a car loan therefore he must improve his credit score before leasing.

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