A Guide to Credit Scores for Leasing a Car
When it comes to leasing a car, there are several questions that may come to your mind. For instance: what credit score do I need to lease a car? Or, how will leasing a car affect my credit score? To help you with your queries, we’ve crafted a guide.
Before we proceed to answer these important questions, it’s crucial for you to understand whether your credit score is considered good or poor. You also have to know how leasing a car can impact your future credit score.
FICO, also known as Fair Isaac Corporation, is a data analytics company in California that focuses on credit scoring. Your “FICO score” corresponds to your credit rating and can range from 300 to 850. Most lending companies and banks also use this score when determining their customers’ credit standings. So, here is a breakdown of FICO credit scores:
- 300-579 is considered a bad or poor credit score. 16% of Americans fall under this category.
- 580-669 is considered a fair credit score, and 17% of Americans have it.
- 670-739 is considered a good credit score. 21% of Americans are classified as having a “good” score.
- 740-799 is considered a very good credit score. 25% of Americans have a score in this range.
- 800-850 is considered an exceptional credit score, and 21% of Americans are in this category.
All in all, 67% of Americans have “good” or higher FICO credit scores. There’s a high chance that you belong in this area as well.
Credit Score Needed to Lease a Car
Now you might be wondering, what is the minimum credit score that I should have in order to lease a car? Well, that depends on a number of factors such as the type of vehicle, the size of your down payment, and your prior lease history. The average minimum credit score for leasing a car is 620, which lies in FICOS’ “fair” category.
How Good of a Credit Score Is Needed to Lease a Car
The higher your credit score is, the easier it is for you to get a great deal on leasing a car. For the typical 24-48 months leasing structure, you should strive to have a credit score of at least 680-700.
Do I Need a Good Credit Score to Lease a Car?
The answer to whether you need a good credit score to lease a vehicle can be yes or no. It really depends on your financial situation. If your credit score is lower than 580, you can still find a dealer that will lease a car to you. Opportunities will just be rarer, and typically the leasing conditions will be less favorable to you. This is because reputable dealers won’t be confident about the guarantee of your lease payments.
However, there is a piece of good news individuals who have a “fair” FICO credit score, rather than a “good” one. If you have a minimum score of 620, you should still be able to lease cars from some dealerships, and the terms won’t be too unfavorable.
Does Leasing a Car Affect Your Credit Score?
There are certain factors that will affect your credit score if you lease a car. The most important factor is whether you complete your payments on time. You might be wondering why your credit score dropped after leasing a car. This could happen if you missed a payment, which would thus impact your credit score. If your payments are always on time, then you have nothing to worry about. This is actually a great strategy that will eventually help you build your credit score.
The other way your credit score can be impacted by leasing a car is if you start making early payments. However, some agreements do allow you to have an option where someone else can take over and pay for your lease payments.
Should I Lease a Car or Buy a Car?
Leasing a car is totally different from leasing a house because most cars’ values depreciate over time. Leasing a car might be the only right choice for you in some cases, but here is how sometimes buying a car is better:
- With buying a car, you have more freedom to work with. You can sell a car on your own terms and time.
- If you are more likely to drive a lot and commute from city to city, it is in your best interest to buy a car. To save some money, consider getting a used car.
- If you have a low credit score, this might be a situation in which buying a car would be more advantageous. However, if you want to increase your score while also driving a modern car, then leasing is better. You also wouldn’t have to pay a huge up-front sum. are low in credit points and belong to the lower part of the credit range then it is also a great option to buy a car over leasing a car.
But when it comes to your concern over credit score and increasing the credit points while also enjoying a brand new and latest car, it is better to lease a car where you don’t have to pay a large sum of money at once.
Here are some reasons why leasing a car might be best for you:
- You have a chance to improve your credit score if your payments are made on time.
- You are more likely to get a brand new car every 3-4 years after the lease payment is completed.
- If your credit score is over 750, then you are more likely to get better cars for a lesser price.
- You have the option to own the car after the payments are completed.
However, there is still the problem of your car depreciating after you have completed all the leased payments. In this case, your car is not worth the same as all the monthly payments that you have paid.
This argument works both ways. That is, buying a car and selling it after 3-4 years will cost you some money and, in some instances, a lot of money over time. Cars are only investments if they are collectibles, rare, have history attached to them, and there is a demand for them among car collectors and car enthusiasts.
If, after reading this guide, you are still struggling with deciding whether to buy or lease a car, give us a call! At Debt Quest USA, our priority is to help you make wise financial decisions and to equip you with the tools necessary to do so.