Vehicle leasing is a type of financing where you rent the vehicle for a particular time-frame. After the rental duration ends, you have to return the vehicle. However, in the case of a car loan, the car’s ownership remains with you. In both cases, you have to make monthly payments and would need to have a decent credit score. In this article, we will talk about credit scores for leasing vs. financing a new vehicle:

Credit score needed for leasing

1. Acceptable credit score

The exact credit score required for leasing a car differs from dealership to dealership. But a minimum score of 620 is acceptable by all dealerships. It is advisable that you keep your score above 620. This is because if a score falls in the range of 620 and 679, it is considered near ideal. But the moment you land between 680 and 739, the dealerships will start offering appealing lease offers. The impact of leasing on credit score considers these points:

• Lease payments: Amount to 35%
• Installment account: It accounts for 10%
• The number of payments: Make regular payments towards your lease as these amount to 30% of your FICO score

2. Credit history

If you have been making longer and regular payments on your account, they will age and make your credit history good. Credit history accounts for 25 percent of your credit score.

Credit scores for financing

1. FICO

FICO score is used by various auto lenders for approving loans to customers. The score determines whether or not you will be able to repay your debt timely. Although the way it is calculated varies from lender to lender. There are five parameters (FICO scores), as mentioned below. Based on these, the loan is approved:

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850: Excellent

Also, if you have a higher score, you will have fewer restrictions on the terms of the loan, and you will get finance at a lower interest rate.

2. Utilization of credit

Keeping it between 5% and 30% is advisable. This shows that you are at a lower risk of default. In totality, this accounts for 30% of your FICO score:

• Payment history: 35% of your FICO score comes from this aspect. It reflects whether or not you are making timely payments towards installments.
• Credit history: Broadly, if you have been consistent with your payments, you have a good credit history. This accounts for 15%.

3. New credit and credit mix

Each amount accounts for 10% of your FICO score. Do not open multiple credit accounts at once. Moreover, you need to handle different accounts responsibly.

Deciding whether to lease a car or finance one depends on you. If you want to have complete ownership of the car and can make decent monthly payments, financing can be a great option. However, if you are someone who has budget constraints and wants to try new models of cars from time to time, car leasing can be a great option. Now that you have an idea about credit scores for leasing vs. financing make a wise choice.