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Leasing a Car with Bad Credit

Thinking about leasing a car but worried about your credit? Don't worry, we can help! In this article we’ll tell you how to lease a car with bad credit.
For over 60 years, Credit Union of Southern California (CU SoCal) has been providing quick pre-approvals, no application or funding fees, and so much more.  
Call CU SoCal at 866.287.6225 to schedule a no-obligation loan consultation, or apply online today!

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Can You Lease a Car with Bad Credit?

Bad credit can happen to anyone when bills are paid late or not at all. Unfortunately, bad credit can stay on your credit history for several years, making it challenging to get approved for new credit and loans.
All lenders, including credit unions and banks, will look at a loan applicant’s credit payment history and credit score to determine an individual’s ability to repay the loan. Not only is credit directly linked to eligibility to borrow, but it also determines the interest rate you’ll pay.
Lenders consider individuals with a low credit score to be a higher risk of loan non-payment, and will charge a higher interest rate.
Although bad credit can make it more difficult to get a car loan or result in a higher interest rate, you can still lease a car with bad credit.
Improving your credit score before applying for a loan for a leased vehicle can lower your monthly payment.

How Do Car Leases Work?

The main difference between leasing and purchasing is that when you purchase a car, it becomes yours once the car loan is paid in full. Leased vehicles, however, must be returned when the term ends or purchased for the residual value. Learn more by reading How Does Leasing a Car Work and is it Ever Worth it?

Leasing Vs. Buying A Car

 Advantages of Leasing a Car:

  • Lower down payment. Putting more money down on a lease doesn’t save you money as it would with a car purchase. This means you can put less down and keep money in the bank.
  • Lower monthly payments. Lease payments tend to be lower because you’re essentially “renting” the car vs. paying more to purchase.
  • Get more for your money. Because monthly payments are generally lower than monthly car purchase payments, you may be able to afford a higher-end, fully-loaded model that would normally be too costly to purchase.
  • Avoid costly repair bills. At the end of the 2-4 year lease term, you’ll return the car to the dealership, thus avoiding high-mileage repairs to the engine or transmission that are common with older cars.

 Advantages of Buying a car:

  • Build equity with ownership. Assuming you use a car loan to make the purchase, when the loan is paid-off, you own the vehicle. This means you can still make money by selling it or getting trade-in value.
  • Sell any time. Even if you still owe money on a car loan, you can sell the car and pay off the balance of the loan. Most leased vehicles will cost you a penalty for early termination of the lease contract.
  • No mileage limit. Leased cars have a mileage limit and you’ll pay extra if you exceed the limit.
  • Customizable. If you like to customize your cars, you can do so with a car you purchase. Cars that are leased cannot be altered by the lessee.
 Still not sure whether to lease or buy? Consider these pros and cons of leasing vs. buying a car.

Why Credit Score Is Important

Credit is a central part of any loan application process, whether you’re applying for an auto loan, a home mortgage, or a credit card. All lenders, including credit unions and banks, will look at the applicant’s credit score and credit history to determine their ability to repay the loan.
People who make loan payments on time will have a high credit score and be categorized by lenders as low risk. Individuals who have missed or skipped making loan or debt payments will have a low credit score and are seen as high risk and will be charged a higher interest rate for a loan.
Here’s how FICO® (the most popular credit scoring model, used by most lenders to evaluate an applicant's creditworthiness) ranks these various factors to create our credit scores:

Payment History: 35%

The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score. Be sure to keep your accounts in good standing to build a healthy history.

Amounts Owed: 30%

Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low FICO Score. However, if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting.

Length of Credit History: 15%

In general, a longer credit history will increase your FICO Scores. However, even people who haven't been using credit for long may have high FICO Scores, depending on how the rest of their credit report looks.

New Credit: 10%

Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don't have a long credit history. If you can avoid it, try not to open too many accounts at once.

Types of Credit (Credit Mix): 10%

FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. Don't worry, it's not necessary to have one of each.

Credit Inquiries

The only inquiries that count toward a FICO Score are the ones that result from applications for new credit.
FICO Scores do not count:
  • Consumer-initiated inquiries. Requests you have made for your credit report in order to check it.
  • Promotional inquiries. Requests made by lenders in order to make you a "pre-approved" credit offer.
  • Administrative inquiries. Requests made by lenders to review your account with them, and requests coming from employers.

Credit Score Needed to Lease a Car

According to Experian data, the average credit score for a car lease in the second quarter of 2020 was 729. But don’t worry if you have less than perfect credit. Learn more about the credit score needed to lease a car.

How to Lease a Car with Bad Credit

Here are some simple steps anyone can take in order to lease a car with bad credit.
Check Your Credit Reports: The three major credit bureaus (Experian™, Equifax®, and Transunion™) gather information about your credit payment history and use this information to generate your unique credit report.
Under Federal law, you are entitled to receive one free copy of your credit report from each credit reporting company every 12 months.
Carefully read your credit reports to see if there are any errors. Errors in credit reporting can be disputed by you for free (you do not need to hire a special company to dispute errors).
Did you know? Credit reports do not contain credit score numbers. Information contained in credit reports are used to calculate credit scores; however, those numbers are available elsewhere.
Where can you get your score? Many credit card companies will print your score on your monthly statement. If you don’t see it, call and ask if the company can provide it to you for free. You bank may also be able to provide you with your credit score.
Take Steps To Improve Your Credit Score: In addition to correcting credit report errors, and paying loans and other debt on-time, there are other steps you can take to improve your credit score.
Avoid credit “hard inquires.” This means not applying for new credit cards.
Don’t close old credit accounts, even if you’re not using them. Having open credit lines that you no longer use will improve your “credit utilization score.” Credit utilization accounts for 30% of an individual’s FICO score.
The CU SoCal Credit-Builder Loan is a great tool for those who have less than optimal credit or no credit history. Once you apply, CU SoCal establishes a share certificate for $1,000. After making payments for one year, you receive $1,000 cash. Your payments are reported each month to all three major credit bureaus. This process helps increase your credit score.
Shop Different Dealerships: Each dealership has unique promotions and incentives. Car manufacturers offer incentives too. So, depending on what time of the month or time of year you shop, you could find vastly different deals.
If you don’t need the car right away, you may want to wait until a special promotion comes up that works for your budget. Don’t be afraid to let the lender know you are interested in getting approved for a car lease with bad credit.
Many buyers with bad credit can qualify for a car loan.

Car Leasing Alternatives
If you’re in need of a car but can’t get approved for a lease or simply want to try something different, here are some alternatives to leasing or buying a car:
Buy-Here-Pay-Here (BHPH) Car Dealerships: This refers to auto dealerships in which the financing for the vehicles purchased is done in-house. These types of dealerships are typically involved in the sale of heavily-used cars, and they tend to cater to customers with relatively poor credit.
Lease transfer or car lease swap: This is where the current lease holder transfers the cost of the lease (and full responsibility) to a different driver. Transferring a car lease can be tricky so be sure to talk your lender first to make sure it’s allowed.
Vehicle Subscription Service: This is a service that a driver subscribes to for a fee, in order to have access to a vehicle. Subscriptions are typically on a monthly basis.
Car-Sharing Services: Car-sharing is a Membership based service available to all qualified drivers in a community.

Why Savvy Consumers Choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our auto loan experts.
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Building Better Lives

Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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