Recently, Americans have shifted over to leasing cars rather than purchasing them to own. According to Statista, about 25% of vehicles were leased in 2021, which is an increase from previous years. Leasing a car can be a more economical option for many, but can it help improve your credit score or build your credit?
A reputable credit repair specialist will tell you that leasing a car can help you build your credit the same way other loans can impact your credit. The more you pay your monthly balance in full and on time, the more it can improve your credit. When you miss payments or make late payments, it can negatively impact your credit.
What Is a Car Lease?
When you lease a car, you agree to pay for use of a vehicle for a fixed period of time at an agreed amount of money for the lease. In 2023, the average car lease costs around $487 per month. Up-front costs for leasing generally doesn’t require any type of down payment, but you should anticipate paying:
- First month’s payment
- A security deposit
- An acquisition fee
- Other fees and taxes
Many Americans find leasing a car to be a more affordable option to drive in style, as the monthly payments are typically lower to lease than to pay off an auto loan. The initial payments made on leased vehicles also tend to be lower than a downpayment on a vehicle for purchase.
How Leasing a Car Can Help Build Credit
Leasing a car affects your credit the same way an auto loan would. When you lease your vehicle, you make fixed monthly payments for the duration of the lease agreement. The creditor or lender reports your monthly payments (or lack thereof) to credit reporting agencies. This account will show up on your reports as an installment account.
An installment account is a type of loan that you make fixed payments towards over a set period of time. These loans typically have interest rates, repayment terms, and fees that will impact the amount due each month. Other types of installment loans include mortgages and personal loans.
In order for your lease payments to impact your credit, verify that your leasing company reports to all three credit bureaus (Equifax, TransUnion, and Experian). To reiterate, leasing a vehicle can only help improve your credit if you make each and every payment on time and in full.
Additionally, leasing a vehicle can hurt your credit if you do not make timely payments in full. If you can’t pay the agreed upon amount and miss a payment for thirty days or more, or default on the lease agreement, it can negatively impact your credit.
What to Consider When Leasing a Car
Building your credit shouldn’t be the only deciding factor between buying or leasing a vehicle. Here are a few other things to keep in mind when considering leasing:
If You Already Have Bad Credit
We all fall on hard times, and our credit can take the brunt of it. If your credit score is low, or you’re at the point where you’re researching Pennsylvania debt collection laws, it may be challenging to lease a car. You may increase your chances of getting approved to lease a vehicle if you:
- Make a large down payment on a lease
- Have a cosigner on your lease
- Improve your debt-to-income ratio (DTI)
Restrictions On Vehicle Modifications
When you lease a car, you do not own it in any way. Always read the fine print on your lease agreement, because they can be long and complicated. The last thing you want is to unknowingly violate the terms of your agreement, which can cost you hundreds or even thousands of dollars if you aren’t careful!
Often, these restrictions look like any modifications made to the vehicle. Common modifications that violate common leasing terms and conditions include window tinting, placing bumper stickers or decals on the paint, and aftermarket spoilers. The dealership will want the car to be returned in ‘showroom condition’ and will likely charge you fees for any modifications that are not temporary or easy to remove.
In Closing
While leasing a vehicle may improve your credit, it’s not the only way to do so. At The Phenix Group, our team of professionals are experts in both the financial and legal side of credit. When your credit stops you from achieving your goals, it can be a huge setback.
Whether you’re trying to secure your dream car or wondering if a creditor can garnish your wages after seven years, our team can get you the answers you need and create a plan to get you on track. Contact us today for your consultation!