Home > Auto Loans > 4 Things You Must Do Before You Lease a Car

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Article Updated May 31, 2018 by Brian Acton

Getting a new car is a big decision, and you should choose your next vehicle carefully. But if you think finding the right car is difficult, deciding whether to lease or buy can be even more overwhelming.

While leasing isn’t for everyone, it does offer a few distinct advantages over traditional auto loans. If you do decide to lease, you need to ensure you’re getting the best deal possible.

Here are four things you need to do before you lease a car.

1. Make Sure a Lease is Right for You

Leases offer some advantages over buying. The down payment and fixed monthly payments for a lease are typically lower than the cost of financing. You get to drive a newer car, and many repair costs may be covered by the manufacturer’s warranty or the lease agreement.

However, leases also come with many limitations and the potential for additional costs. If you exceed a lease’s mileage limit (typically between 10,000 and 12,000 miles per year), you’ll pay a fee for every additional mile. You’ll also be charged for extra wear and tear and you aren’t allowed to modify the vehicle. If you decide the car isn’t right for you, you’ll pay a steep penalty for terminating your lease early.

Despite the lower monthly payment, the lifetime cost of leasing is generally much higher than buying, especially considering you don’t own your car at the end of the lease. Before you decide if a lease is right for you, make sure to understand the pros and cons of leasing.

“Consumers need to fully understand any potential cost on the back-end and be sure they can meet the terms of the lease – such as mileage limits and wear and tear,” said Melinda Zabritski, Senior Director of Automotive Credit for Experian Automotive.

2. Check Your Credit

Your credit score plays a key role in the lease you get. “There are different tiers of credit that will be evaluated,” said Scot Hall, Executive Vice President of WantaLease.com. “If you have better credit, you will get better rates unless it’s a dealer-subsidized lease.”

Before you apply for a lease, you should check your credit report, giving yourself plenty of time to dispute and fix any negative mistakes. You should also check your credit score; while scoring models differ depending on the lease, you will have an idea of where you stand (you can access two of your credit scores, updated monthly, for free at Credit.com).

Depending on your credit score, it may be easier to qualify for a lease for certain vehicles. For example, Experian Automotive found that the average credit score of someone who took out a loan for a new Volkswagen Jetta in the fourth quarter of 2014 was 715, while the average credit score for a lease was 692. For a new Jeep Grand Cherokee, the average credit score for a loan was 735, while the average credit score for a lease was 728.

 

average credit score

 

3. Know What You Can Afford

One of the biggest advantages of leasing is that you might get a lower monthly payment. According to Experian Automotive, the average monthly lease payment for a Jetta in the fourth quarter of 2013 was $287, while the average loan payment was $389. For a Grand Cherokee, the average lease payment was $470, while the average loan payment was $611.

Leases are cheaper because you’re only paying for the depreciation of the car’s value, plus interest, taxes, and fees. With a loan, you’re also paying off the entire purchase price of the vehicle.

 

average payment

These monthly costs don’t take down payments or trade-in values into account. While leases typically have lower down payments, you’ll have to turn in or buy your car when the lease is up, with no property to show for it.

Before you choose a lease, consider the down payment, monthly payment, and maintenance costs you can afford.

4. Shop Around for a Car and a Lease

Auto loans can be found at banks, credit unions, car dealers, and online. Leases, on the other hand, are largely controlled by the manufacturer. “Nearly all leases are done on a captive basis,” said Hall. “Ford Motor Credit Company does most of the leases for Ford vehicles.”

You may be able to get a better deal if you consider vehicles from different manufacturers instead of sticking to one make and model.

The manufacturer will consider your credit, debt-to-income ratio and the “lease-to-value” ratio (how much you are financing compared to the vehicle’s value), said Hall. If you are having trouble qualifying, you may need to put down additional money or get a co-signer.

Just like auto loans, you can negotiate the purchase price of a leased car – so if you aren’t getting the deal you want, make a counter-offer or keep looking.

If you aren’t ready to commit to a two-or-three year lease, you can even take over the remaining term on someone else’s lease. As long as your credit is in the same tier or better than the person whose lease you are assuming, you shouldn’t have much trouble qualifying, said Hall. Sites like SwapALease.com and LeaseTrader.com help connect consumers who want to get out of leases and consumers who want to assume one.

If you’re wondering if your credit is good enough to purchase a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: Len44ik

This article has been updated. It originally ran on March 20, 2014.

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  • Theryl McCoy

    Does the auto lease industry use a different type of credit score? I recently leased a vehicle and got a really bad deal because they said my score was so low. When I got home I checked my credit score and it as 750. I called them and they said they use their own method of checking credit scores. Did I get scammed?

    • Jeanine Skowronski

      Hi, Theryl,

      It’s possible that the auto lender used a different credit score to assess your ability to repay. However, checking your own credit usually gives you a general idea of where you stand in regards to creditworthiness.

      Federal law requires that an lender send a letter, outlining why you were denied the best terms on the loan. They also must provide a copy of the credit report they used in their decisioning process. Reviewing these materials should give you an idea of what happened. In the interim, you might want to pull all three versions of your credit report (one from each bureau) to check if there is a mistake on any that may have led to a higher APR.

      Thank you,

      Jeanine

    • Ex Sales Person

      They may have ran your credit from one of the other credit Bureaus. For example, my credit score with TransUnion is 700 and 670 with Experian. Also, there are differnces in regards to information that is displayed for me from each one. The best way to go about it is to taken all Bureaus into consideration. I know that where I worked at, they particularly looked at TransUnion for loans.

    • scarhill

      Yes you did.

      Dealers often use the Beacon score. But that should not be significantly different from you FICO score.

      This dealer sounds almost criminal. You should ask them to explain their own method.

      If they do not, you may want to contact an attorney. If the dealer is indeed crooked, a letter from an attorney might entice them to unwind the deal.

  • Denise

    My credit score is really really horrible, do you think I could still get a car?

    • http://blog.credit.com/ Kali Geldis

      Hi Denise —

      Car loans are currently one of the most open credit markets, meaning it’s much more likely you’ll be able to get a car loan with bad credit right now. There are many options, just keep in mind that improving your scores, even just a little bit, can make a big difference in the interest rate you’ll qualify for. You can check your credit scores for free every month on Credit.com to get insights into what’s hurting your score and an action plan to help you improve it (if you can hold out on buying that new car or a while):
      https://www.credit.com/free-credit-score/

  • Cristian Alonso

    My wife just got approved for a lease with a 0 FICO. Do you know how much her credit will improve after let say 2 years of on time payments?

    • http://www.credit.com/ Credit.com Credit Experts

      On-time payments are one of many moving parts of a credit score. Here’s more information on what goes into a score:
      Making Sense of Your Credit Score

  • Sheila T.

    Hello, I am trying to get a car, new would be nice but I will go used. I have bad credit but when I spoke to the dealership they said I would be paying over $500 for a $14,000 car. I’m not sure what to do next.

    • Jeanine Skowronski

      Hi, Sheila,

      You can get a car loan with bad credit, but you typically will have to pay high fees or interest to do so. You can try shopping around for better financing, but it may be tough to secure lower rates until your credit improves. You can try pulling your credit report to review for errors, paying down high credit card balances and getting accounts in default out of default, if you have any, to try to get your score to go up a bit in the short-term.

      Thank you,

      Jeanine

  • Makayla H.

    If you have no credit at all would leasing be a good option?

  • mzchiff

    My credit score is quite low. Will i still be able to lease a car?

  • michael t

    I’m enrolled in a debt payment plan and am making significant inroads in terms of paying down my debt. I am also currently leasing my vehicle. My credit score is also around 703 currently. Will being enrolled in a debt payment plan hurt me when I go to re-lease a new car (when my current lease is up) even though my credit score is good?

  • Ryan

    I currently have a 3 year lease with Honda. I’ve never missed a payment. When I first started the lease, my credit score was 700. Now, after maxing out a couple of credit cards, my score went down to about 650-660. I’m worried I won’t be able to lease another care upon trade-in. My mother may be willing to co-sign. Does this help my chances? Any other advice? Please and thanks in advance!

    • http://www.credit.com/ Credit.com Credit Experts

      If your mother has good credit, a co-signer may help. If you have the ability to pay down your credit card balances quickly, that could also help your credit score a lot in the short term.

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