Yes, you can be refused a rental car contract if your credit rating is too low. Although leasing a vehicle is not like a car loan, your credit score is still an important factor in determining your eligibility for car leasing.
Lease Approval Chances With Bad Credit
Leasing companies tend to have high credit score requirements for their vehicles. Those with credit scores in the bad credit range may not qualify for auto leasing, and they tend to have a better chance of getting bad credit auto loan approval in the future. the place.
Typically, most lenders consider borrowers with a credit score of less than around 660 to have bad credit. Borrowers with a credit score between 501 and 600 are considered “sub prime” by the Experian credit bureau.
In the second quarter of 2020, subprime borrowers made up just 5.8% of leased vehicles, according to Experian. Borrowers with credit scores below 500 made up only 0.29% of rented cars.
Bad credit borrowers may not have the best chance of getting approved for a rental car contract, but some do get the go-ahead sometimes. However, with a lower credit score, it usually means paying more for the car.
The cost of a lease with bad credit
Obtaining the approval of a lease means meet income requirements. Almost all leased vehicles are new, so payments can be quite expensive.
For at-risk borrowers, the average lease payment was $ 476 per month in Q2 2020, as Experian reported. For borrowers with the best credit scores, the average lease payment was $ 467. It’s not a big difference, but these are only averages – your monthly payment could be higher or lower. The cost of a rental largely depends on your credit score and the price of the car you want to rent.
The cost of a rental is not limited to the price of the vehicle. Instead of using an interest rate, leasing companies use what’s called a monetary factor, which is basically the leasing version of an interest rate.
The better your credit score, the better the money factor level you typically find yourself in and the less you are charged for driving the car during the term of the lease. This means that your credit score has a direct impact on the overall amount you pay.
Additionally, borrowers with bad credit who are approved for auto leasing may find themselves forced to disburse one or more security deposits. Security deposits tend to represent the cost of a rental payment rounded up to $ 50. If your rental payment is $ 480, your security deposit will likely be $ 500.
The amount can vary from leasing company to leasing company, but it’s a good place to start to start preparing. If your credit score is very low, you may need to save even more money.
Get a car loan instead of renting with bad credit
When it comes to your next vehicle choice, having a lower credit score usually means you’re more likely to be approved for a car loan than a lease. Since leasing companies have higher credit score requirements, this can mean denial even if you have the income to pay for the vehicle.
If you’re determined to lease your next car, it doesn’t hurt to apply with a few different leasing companies. Even if, work on your credit score can increase your chances of approval. Plus, car loans can actually improve your credit if you manage it well. Even then, however, having bad credit can make it difficult to find a lender.
Not all auto lenders can work with bad credit. Those who do are called subprime lenders, aptly named after the range of credit scores they cater for. These lenders are registered with dealers who have special financial services. Finding a dealer with these resources can be like looking for a needle in a haystack, but we already know where they are.
Here has Auto Express Credit, we have created a network of dealers with relationships with subprime lenders. We match borrowers with these dealers at no cost. To get started and help us find a dealer for you in your area, complete our auto loan application form.