What Credit Score Do You Need to Lease a Car?

If you’re in the market for a new car, you should know that your credit score can impact your chances of getting approved for a lease. Though the credit score necessary to lease a car varies by dealership, the minimum credit score you should aim for is 620. With a credit score between 620 and 679, you’ll likely get approved to lease a car from most dealerships. To guarantee getting approved, your ideal credit score should be 680 or above to lock in a vehicle lease.

Of course, once you get approved, that’s not the end of the story.  Where your credit score falls above or below 680 can have massive implications as far as whether your lease payments are high or low, whether you only qualify for a used car lease and, at some dealerships, whether you’re approved to be able to lease a vehicle at all.

What Impact Does Your Credit Score Have on Your Car Lease?

When leasing a vehicle, you’ll want the application process to run as smoothly and if your credit score is below 680, there may be some bumps in the road. 

With a credit score between 620 and 680, you may get approved for the lease, but you will likely pay more on the down payment and on your lease payments. This is because you are seen as a bigger credit risk by lenders and will likely pay more interest. In terms of additional monthly costs, this could be as little as $10 or as much as $125, depending on how the lender and the dealership assess your borrowing risk.

If dealers think you’re too risky based on your credit score, you might not even get approved for a lease in the first place. You should work towards improving your credit score above 680 as much as possible. If you can’t do that for whatever reason, it’s important to have a back-up plan in mind. A secondary option could be leasing a used car instead of a new one, as the bar for approval is generally lower. 

If you have a credit score above 680, you don’t have to worry about any of that. You should be able to lease any car you want and fly through the actual application with no issues. You might even be able to get a lease deal when you can exceed the minimum credit requirements.

Of course, that doesn’t mean you’re necessarily unable to lease a vehicle with a less than stellar credit score. You may even be able to improve your credit with a car loan.

How Do I Get a Car Lease with a Bad Credit Score?

You can lease a car with bad credit, but you’ll have to go through a few extra steps. Some of these steps may include:

• Getting a co-signer

• Making a larger down payment

• Take over an existing lease from someone else

Get a co-signer

One way to improve your lease approval chances with bad credit is by finding additional support in the form of a co-signer. A co-signer is someone who has agreed to pay your debts if you are unable to make your car lease payments. A co-signer should have a good to excellent credit score along with a history of reliable payments

If you find a co-signer with good or excellent credit, your lenders will be more willing to approve your lease. They’ll feel more comfortable knowing that your co-signer can take on your lease and bear the responsibility of your payments should you miss payments and begin to default.

When getting a co-signer for a car lease, you should evaluate the pros and cons. Carefully assess the impact on your relationship with the co-signer should you default, the responsibilities of the individual co-signing, the terms associated with the lease, and the potential impact the lease could have on the co-signer's credit score.

Make a larger down payment

If you want to increase your chances of being approved for a car lease with bad credit, another way is to assume more risk with a larger down payment. This lowers the risk for the dealership since you’re borrowing less money from them.

Making a larger down payment may also help you minimize your lease costs over time. You may be able to lower both the amount of interest paid on the lease, as well as the monthly amount to be paid for the lease.

Take over an existing lease

Finally, you may be able to take over the lease from someone who must break their lease deal early, but they can transfer their lease. You’ll pay a transfer fee, but if you’re able to take over, you’ll enjoy a shorter term with no down payment and lower monthly costs. 

Overall though, it’s best to put off your need for a vehicle until you can raise your credit score above 680. This will mean you’ll more easily get approved, pay less interest, get approved for the car you actually want, and have a lower down payment with lower monthly fees.

Does a Car Lease Affect Your Credit Score?

Leasing a car can affect your credit score. Whether the effect is positive or negative depends on whether you make your payments on time.

One of the biggest benefits of leasing a car is its ability to help you build credit as long as you make payments on time consistently. Taking on such a major expense shows lenders that not only can you take on a debt, but you can actually pay it back in full according to the terms you agreed to.

However, if you are late in making your payments or are unable to make them on a regular basis, a car lease could just as easily ruin your credit and make you a high borrowing risk for lenders. Miss enough payments and your privileges to the car could be revoked and your credit file could end up in collections.

What Are the Requirements for Leasing a Car?

Besides a good credit score, there are several additional requirements necessary to lease a vehicle. The following are some of the general requirements for leasing a car

• A demonstrated ability to make payments

• Valid driver’s license

• Legal resident

• Completed lease application

• Eligible vehicle

• Co-signer (if credit is too low)

Ability to Pay

You’ll need to show your lenders your current income through either your last few paycheques, or if you’re self-employed, your last two tax returns. You also need to show that you have been working at your current job for at least two years and living at your current address for the same period.

Valid Driver’s License  

To lease any vehicle you will need a valid driver’s license in the province you reside and not a learner’s permit.

Must be a Legal Resident

You’ll need to be a Canadian citizen or landed immigrant to be able to lease a vehicle.

The Full Leasing Application

You cannot lease any car without completing the full leasing application, especially a signed credit consent form, which allows the dealership to do a full credit report on all lessees involved.

An Eligible Vehicle

Certain vehicles can be ineligible for lease, including some imported vehicles, vehicles with an accident history, vehicles branded salvage, irreparable or rebuilt, and vehicles used for commercial purposes like a limousine, a taxicab, a sightseeing vehicle or an Uber vehicle.

A Co-Signer

If you don’t have a high enough credit score to be able to lease a vehicle on your own, even with higher payments, you will need a co-signer who shares the responsibility for the payments with you and, in the event you cannot make them, will be on the hook to take over. If your credit score is above 680, or deemed high enough by the lenders, you will not need a co-signer. 

What to Do Before Applying for a Car Lease?

If you’re looking to lease a car, there are several things you should do to prepare:

• Review your credit report for mistakes

• Raise your credit score

• Reduce your credit balances

• Make timely payments on your bills

• Maintain your credit accounts

Review your credit report for mistakes

Before you can build your credit and raise your credit score, you need to make sure the credit score you have is accurate. Make sure any open credit lines on the report are ones you still have and ones you actually took out. Make sure your address is right and if you find any inaccuracies or you think credit has been illegally taken out in your name, call the two main credit bureaus -- Equifax and TransUnion -- right away. You can check all the information by downloading your credit report for free.

Raise your credit score

If you want your lease deal to go smoothly, you’re going to want to hit that 680 sweet spot, but you have to get there first. Make your payments on all your revolving credit lines on time and with consistency while paying more than the minimum and your credit score should rise over the long-term. If you're new to Canada and don't have a credit file, there are steps you can take to build credit from scratch so that you can qualify for a car lease in the future.

Reduce your credit balances

It’s recommended that you reduce your balances to the point where you’re cumulatively using only 30% of your available credit, if you want to try and achieve an optimum credit score.

Make timely payments on your bills

Paying all your bills by the date they’re due every month like clockwork will go a long way to raising your credit score over time.

Maintain Credit Accounts

Do not close your credit accounts after you pay them off. Keeping credit accounts open and without a balance will actually bring your credit score down quickly because you will have more available credit overall than if you were to close them and thereby reduce your available credit.

What Are the Pros and Cons of Leasing a Car?

Like many things in life, leasing a car comes with many rewards along with many risks and challenges:

Pros

• Compared to financing a car to own, lease payments are generally lower

• Monthly payments on a car lease are usually lower than financing a car to own

• Repairs for a car under lease are cheaper thanks to the vehicle’s warranty 

• You're only committed to a lease deal for a short period of time.

Cons

• You don’t own the vehicle

• Your limited to a set number of annual miles without paying an additional fee

• There are various additional fees you may have to pay when you lease a vehicle

• In some cases, you may need gap insurance, which covers the difference between the car’s actual value and how much you owe on the car.