Most people—especially those who prefer luxury cars—want to know the impact of car leasing on their credit score even before approaching dealers.
The truth is that all sorts of monthly repayment deals impact a credit score, and a car lease won’t be any different. Fortunately, you can make car leasing work for you.
What is the connection between car leasing and credit score?
It is simple. Car leasing is a financial deal such as credit cards or car insurance.
After sealing the deal with the leasing company, it will reflect on your credit report. This is where you get the chance to boost your credit score.
But what if you already have a bad credit score? Does this cripple your leasing power? Not outrightly.
A bad credit score can make the car leasing process a bit more demanding, but you will most likely get an offer during the credit check process.
Are credit checks for car leasing compulsory?
Even with cheap car leasing companies like Lease Loco, carrying out credit checks is a necessary part of the entire process. Credit checks affirm your ability to make payments in the future. They pass confidence to the leasing company in your favor.
Individuals with poor credit scores may feel less motivated to lease their favorite cars for fear of credit checks. This shouldn’t be the case as dealers are not necessarily looking for a perfect score.
How does car leasing improve one’s credit score?
As already established, you can make car leasing work for you if you adhere to specific strategies. Your payment history makes up a considerable part of your credit score, so meeting up with monthly payments will reflect positively on your total score.
Here are some actions that can help improve your credit score through car leasing:
1. Know your credit score beforehand
It might seem obvious, but several people approach leasing companies without having an idea of their credit score. They end up making financial commitments that can harm their current score.
Choosing a car makes early repayments easier when you plan with your current credit score in mind.
Knowing your credit score will help determine how much you can part with monthly to repay the car lease. If you decide on the type of car and repayment amount blindly, you may find it challenging eventually to meet up with the payment schedule.
Remember, missing or making late payments are typical actions that negatively affect your score. Rather than wait until any of these happen, set up a plan for direct deductions with the leasing company.
2. Use a guarantor
Disappointments with repayments always happen, but your credit score doesn’t have to suffer when you face these situations.
Especially if you have a bad credit score, getting a leasing deal can be challenging because no company wants to take a dangerous risk. Using a guarantor is an excellent way to get a deal and improve your score. The deal may also come with a reduced interest rate.
Of course, you have a better chance if your guarantor has an excellent credit rating.
The guarantor automatically becomes responsible for funding the lease if you cannot make payment. This is a better option than late payments, which can lower your credit score.
Carefully choose a guarantor, making sure you go for a financially-responsible adult who can stand in for you in case you default. The rules for eligible guarantors differ according to the leasing company.
3. Consider the length of the lease
Consider leasing the car for a short period to improve your credit score quickly. Short leases can impact your ratings positively if the amount is low too.
Conversely, choosing a short-term lease on an expensive car can be risky. Only do so if you are sure your repayment plan is solid. Your credit score will suffer if you miss payments for an expensive lease.
What is the solution? Choose an affordable amount you can repay over a short period or go for the long-term with an expensive lease.
Conclusion
Whether you have an impressive or low credit score, you can use car leasing to your advantage.
Making early payments is the key. Plan for situations that can make you default by using guarantors and choosing an affordable lease. The leasing company should help you work out a satisfactory repayment plan.
