Leasing banks check the credit reports of anyone applying for a lease. You must have good to excellent credit to lease a vehicle. Financing may prove a better option for those with poor credit. Determine your credit standing before you apply for a lease and learn which other information banks use to determine your application approval.
Check Your Credit
Obtain a copy of your credit report from the three major bureaus to determine your own credit standing. Leasing banks may review your credit information from one or all three bureaus. AnnualCreditReport.com offers one free report from each bureau per year. Check your credit report to ensure your accounts are reported accurately. To obtain a vehicle lease, expect to have minimal credit issues, if any at all. All accounts must show as current (you can't be late on payments) and your history should reflect consistent, on-time payments and several long-term accounts. You are not likely to obtain a lease approval if any judgments, bankruptcies, collection accounts or repossessions are on your credit report.
Credit Application Process
Aside from credit history, a leasing bank uses other information to determine your application approval. Expect to provide the leasing bank with your employer and income information. A leasing bank uses your income information to determine your debt-to-income ratio. Your gross annual income should be sufficient enough to cover your monthly debts, all of which are listed on your credit report. For example, someone who makes $100,000 per year may be declined for a lease if his debts exceed $80,000 per year. Mortgage payments, car loans, credit cards or other loan balances and limits are viewable on your credit report. Expect to also have at least two years of verifiable employment and address history.
Leasing Bank Risks
A leasing bank requires good credit because of the risk it assumes from leasing a car. A leased vehicle's monthly payment is lower than a comparable financed payment, so the vehicle's lease amount and actual value do not often equal out until the end of the leasing term. If a lessee defaults on her lease, the bank can lose a significant amount of money. Lessees are often billed for over-mileage and excess wear-and-tear fees after the vehicle's return, not before. If the lessee does not pay the amount due, non-payment is reported to the credit bureaus. Good to excellent credit consumers are more likely to pay their debts.
Other Options
If you've been declined for a lease, you can still use a co-signer to obtain a lease approval. Lease approvals are based upon the cosigner's credit score, history and income. If you don't have a cosigner, consider financing the vehicle instead. Auto loan providers offer more flexibility with approval; you may obtain a loan with poor credit, albeit with a higher interest rate, term restriction or a down payment requirement. New car dealers work with a variety of banks and may use a lender suitable for your credit standing.
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