Almost everyone needs a car in our daily lives whether to take you to work or to drive your kids to school. In most cities, it is essential to getting from point A to point B. If you don’t have one yet, you might be wondering whether it’s better to lease or buy one outright.
However, before making any large purchases like a vehicle, it’s helpful to know your credit score so you can find out what kind of loan you can get approved for and what kind of interest rate you will be dealing with.
In this article, we look at the credit scores you need to lease or purchase a vehicle so you can better plan to get your dream car.
What Credit Score You Need To Lease A Car
Stated by a credit repair Dallas expert, the advantages of leasing a car versus buying one outright are that you generally get lower monthly payments. Some experts say you can get anywhere from 30% to 60% lower payments versus buying a car. Another big advantage is that you have warranty protection for the entire time you drive the car.
Leasing a vehicle is like buying because you still need a decent credit score. According to Nerdwallet, “the average score for customers staring a new lease was 722. If your score is 680 or above, you’ll likely have attractive offers.”
Credit scores above 740 are considered excellent by lenders, and those with scores 740 and over get the best rates and deals regardless of whether they purchase or lease.
But, what if your score isn’t so hot?
Well, according to LeaseGuide.com, if you have a score between 620-679, you’re still in the ballpark for getting a lease. However, while you’re more than likely to be approved with those numbers, you may get a higher interest rate.
Now, if your score is below 619, it’s considered ‘sub-prime’ or fair credit. If you have a score in this range, you may or may not get accepted to lease. And if you do, you’ll likely pay a high-interest rate.
If you have a sub-prime score, you’re better off taking a few months to improve that number before you go shopping for a new vehicle, if you can. Keep in mind that lease requirements always change and vary among auto manufacturers. It’s important to note that market conditions play a factor in whether or not you get approved depending on your score.
Credit Score For Buying A Car
Buying a car has its own advantages over leasing. While you do pay higher monthly payments, you have the benefit of owning a vehicle when you’ve paid it off, and can sell the vehicle when you choose to get another one.
Also, you have the advantage of being able to modify the vehicle if you want without the fear of breaking a contract.
But buying a car is similar to leasing because you still need to have a decent credit score to get a loan. Again, according to Nerdwallet.com, “the average credit score to buy a new car is 713; it’s 656 for a used-car loan.”
If your score is in the low 700s or below, expect to have a difficult time getting a loan. You’ll probably have to answer questions about negative entries in your credit report and have to jump through hoops to prove your income and verify payment history.
While it’s possible to get an auto loan with bad credit, which is defined as a score below 600, it’s unlikely. And if you do get approved, you’ll pay very high-interest rates.
As with leasing, if your credit score is bad, you’re better off spending six months to a year rebuilding your credit score back up if you can afford to wait.
How To Improve Your Credit Score
As you can see, having a good credit score is essential to getting good terms on a lease or car purchase. But if you have less than perfect credit, all hope isn’t lost. There are steps you can take to beef up your score and it doesn’t take as long as you may think.
To know what your credit score means, it’s helpful to know how that number is calculated. Credit scores are three-digit numbers that help lenders know how credit-worthy you are. There’s no uniform algorithm that’s used by everyone, which is why you may have different scores from different reporting agencies.
Credit reporting agencies look at a variety of factors to come up with that number, including your payment history, your credit usage, whether your accounts are delinquent, etc.
First and foremost:
The number one thing you can do to improve your score right away is to make your payments on time from now on. Your payment history is the biggest factor that goes into your credit score.
Even if you’ve been late before, start making every payment on time even if it’s the minimum.
The next thing you can do to improve your credit score is to pay off your debts and credit cards. The debt to credit ratio or credit utilization ratio is the second biggest factor that goes into your credit score. Do everything you can to bring down those credit card and loan balances quickly to send your score in the right direction.
Another way to better your score is to not take on any more debt if you can afford it. It seems counterintuitive since you’re trying to take on a car loan, but when you apply for new credit, your score takes a hit. That’s why it’s best to get your score as high as you can before taking on a car loan or lease payment.
The bottom line to take away from this article is that your credit score is very important whether you want to get an auto loan, home loan, or any other type of credit. If you’re in the market for a new vehicle, your best bet is to examine your credit to see where you stand.
Then, if you think you need to make improvements, do so first before you attempt to get a loan. Getting a loan with a high credit score gives you more favorable terms and makes it more likely you’ll be approved.