Is Leasing a Vehicle Good for Your Credit?
Leasing a car can be good for your credit score – if you can handle the payments, of course! The tricky part of using an auto lease to repair your credit is qualifying for damaged credit.
Can a car lease constitute a loan?
Managing your car rental well can improve your credit score because it can create a positive payment history that lasts for years, as long as you pay all installments on time. Like auto, traditional, and subprime loans, your payments are typically reported to one or more national credit bureaus (TransUnion, Experian, and Equifax) by your lessor.
Your credit reports generate your credit score, and your payment history makes up the majority of your FICO credit score – 35%. This category keeps track of your on-time, missed, and overdue payments associated with accounts reported on your credit reports. By simply staying up to date on your car rental, you increase most of your credit score.
Future lessors and lenders are usually more concerned with your payment history when applying for new credit because they want to see how you’ve handled loans / leases in the past. With a long history of making payments on time on your loans, leases and other bills, you improve your credit score and prove that you can afford to pay off your debts on time. Completing installment loans also shows future lenders that you are able to see your obligations through to completion.
However, you might not have as much time to build up your credit with a leasing compared to a car loan, since they usually only last 24 to 36 months. A car loan typically offers four to eight years of payment history because you are financing the entire sale price of the vehicle. With leasing, you only pay for the time you have available, which usually means a lower monthly payment and a much shorter term.
Can I get a lease with low credit?
Most leasing companies require tenants to have a credit score of around 660 or higher. If you are looking to get a rental car and build credit, you can increase your chances of qualifying for a rental by having a co-signer.
Co-signers allow you to “borrow” their good credit rating to help you meet lessor credit requirements. They also promise to pay off the lease if you become unable to do so, which adds security and increases your chances of qualifying.
If you don’t know anyone who can be a cosigner, then using a bad credit car loan to build your credit score may be a better route.
Auto loans also create credit
Auto loans are installment loans and can help you get a better credit score, just like auto leasing. In addition, there are generally more resources for bad credit borrowers looking to finance rather than rent.
Subprime lenders registered with special finance dealers are equipped to work in many unique and questionable credit situations, such as bankruptcy, past pensions, and no credit history. Instead of just using your credit score to see if you qualify for a loan, they look at the many moving parts of financial stability like your income, employment history, residence status, down payment amount and credit reports.
For borrowers with really bad credit, pursuing a Buy Here Pay Here Dealer (BHPH) may be the way to go if you are in need of a car loan right now. These dealerships often skip the credit check, so borrowers who are unable to secure traditional or subprime auto loans could get behind the wheel. BHPH dealers usually ask for your proof of income, driver’s license, require a deposit, and it’s usually a one-stop-shop experience.
Bad credit and need a car? Start here!
AT Auto Express Credit, we know that improving your credit score isn’t always as easy as getting a lease approved and paying it off on time. With low credit, it can be difficult to get approved for anything in the first place, putting you between a rock and a hard place. But thanks to our nationwide network of dealerships specializing in financing, we can help you get started with repairing your credit with a car loan.
Fill out our free auto loan application form and we’ll search for a dealership in your area who is registered with subprime auto lenders.