The Role Of Credit Scores In The Electric Car Leasing Process
The Role Of Credit Scores In The Electric Car Leasing Process
by
December 23, 2022
As climate change continues to affect our planet, hundreds of thousands of drivers have switched to electric cars to reduce their carbon footprint (others are waiting for more government incentives).
However, you don’t have to buy an electric car to get the most out of a green vehicle. Leasing an electric car is a great option for many, but unfortunately, leasing an electric car isn't as simple as just walking into a dealership and signing on the dotted line (if only!).
Your credit score plays an important role in determining the terms and conditions of your electric car lease. A low credit score could lead to higher rates and stricter leasing restrictions, whereas a high score can help you secure a better deal.
Unsure what that means for you? Follow along as we explore the intricate relationship between credit scores and electric car leasing and explain how to boost your score to get the best possible deal.
Leasing vs. Purchasing: Advantages & Disadvantages
When looking to get behind the wheel of an electric car, it’s important to consider whether leasing or purchasing is a better option for you. If you’re on the fence, here are the three main benefits of leasing an electric car.
Lower Monthly Payments
When you lease a car, you typically only pay for the portion of the car’s value that you use during the lease term. This means that your monthly payments will be lower than if you were to purchase the car outright. This can be particularly beneficial for electric cars, which tend to have a higher sticker price than their gas-powered counterparts.
Less Maintenance
Electric cars have fewer moving parts than traditional gas-powered cars, so they (generally) require less maintenance. When you lease a car, the warranty should cover the maintenance costs. This is a huge advantage if you’re looking to minimize ongoing expenses.
Easier Exit Strategy
Leasing also offers an easier way to switch cars when the lease term is up. Whether you want to upgrade to the most recent model or change car styles entirely, all you have to do is return the car to the dealership and walk away. This is obviously different from purchasing, where you would need to sell or trade the car if you no longer want it.
The Disadvantages of Leasing Electric Cars
While leasing is a great option for many, the biggest drawback is that you won’t own the car at the end of the lease term. Additionally, leases often have mileage limits and penalties for excessive wear and tear. If you drive a lot or are eventually interested in owning the car, it’s better to consider purchasing a new or used electric vehicle.
How Credit Scores Impact Lease Approval & Terms
Does leasing an electric car sound like the right option? If so, you’re likely wondering how your credit score affects your chances of getting approved for an electric car lease.
The simple truth is that the higher your credit score, the more likely you will get approved for a lease and at better terms. These terms could include lower interest rates, a lower down payment, and a reduced monthly payment.
On the other hand, a low credit score could lead to higher interest rates, a higher down payment, or even rejection.
Why is this so important? If you have a history of missed or late payments or a high debt-to-income ratio, it could be a red flag to the leasing company that you aren’t responsible enough to manage an electric car lease.
Credit Score Requirements for Electric Car Leasing
As you can see, lease approval and credit scores are directly related, just like when applying for a regular auto loan. Credit requirements for leasing an electric car depend on the lender and other financial factors. However, anything below 600 could make it difficult for you to get approved.
Typically, it’s best to have a credit score of at least 700 to qualify for an electric car lease. If your credit score is “good” or “excellent,” regardless of the exact score, you can drastically improve your chances of getting approved for electric car leasing.
Electric Car Lease Application Process
Because leasing an electric car isn’t as “permanent” of a decision as purchasing a car, the process might seem much simpler. And, in many ways, it is. However, you still need to follow a few electric car leasing process steps, which include:
- Understanding the ins and outs of leasing a car
- Considering your options
- Determining your monthly budget
- Choosing the right electric car
- Checking your eligibility
- Applying for the lease
By the time you get to that last point, you’ll likely have a solid understanding of what kinds of cars and leases you can qualify for based on your credit score. In that case, it’s time to gather all the necessary documentation to apply for a car lease.
Electric Car Lease Application Documents
Every dealership is different, but when applying for an electric car lease, you'll be required to provide various documents to the leasing company. These include:
- Proof of income
- A valid driver's license
- Proof of car insurance
You'll also need to provide information about your current income and credit history. You won’t likely need to bring a copy of your credit report, as the dealership or leasing company will run their own credit check based on the financial information they need from you.
Car Lease Application and Credit Checks
Yes, car lease applications typically require a credit check (which means you’ll need to be prepared for a hard pull on your account and the temporary dip that occurs when companies run hard credit checks).
The leasing company will use your credit score and credit history to determine your ability to make monthly lease payments. As mentioned above, if you have a high credit score and a good credit history, you should be able to snag a lower interest rate on your lease.
How Leasing Impacts Your Credit Score
Now that you know how your credit score impacts your ability to get an electric car lease, let’s talk about the flip side of the coin — how does leasing affect your credit score?
How an Electric Car Lease Affects Your Credit Rating
When you lease an electric car, your credit score can be positively or negatively affected, depending on how responsible you are when making your monthly payments. If you make payments on time, your credit score should improve, whereas late or missed payments (especially for longer periods) will hurt your score significantly.
It’s also important to reiterate that lease agreements typically require a credit check, which could result in a temporary dip in your credit score. However, for most people, one hard credit check doesn’t do much damage. FICO confirmed that it typically takes less than five points off their score.
Positive & Negative Impacts of On-Time Lease Payments
Whether leasing an electric car with bad credit or paying off credit card debt, on-time payments always positively impact your credit score. That’s because they indicate financial responsibility and a low risk to lenders.
The opposite is true if you consistently miss payments. Making late payments or falling months behind demonstrates to lenders that you’re either financially irresponsible or don’t have enough financial stability to cover your debts.
Does Ending a Car Lease Affect Your Credit Score?
It depends on a few factors, but yes, ending a car lease will likely impact your credit score slightly.
If you’ve finished the lease and decide to return the car, the lease will show up on your credit report as a closed account, similar to closing a credit card. This could cause a small dip in your credit score if you no longer have a diverse mix of credit accounts. However, your score should bounce back once you take out a new auto loan or lease.
On the other hand, ending your car lease could improve your financial situation, especially if you have a lot of debt in other areas (student loans, mortgage loans, etc.). Decreasing your monthly debt obligations will lower your debt-to-income ratio, freeing up more money to save and invest.
The Importance of Good Credit When Leasing
Your credit score and electric car leasing go hand in hand, and like many other areas of your financial life, having good credit can make a big difference.
Leasing companies will run a credit check before offering you a lease on an electric car, and the higher your score, the better your chances of getting approved and having great lease terms. Aim for a credit score of at least 700 to improve your odds.
Improve Your Credit With Cheers Credit Builder
Do you need to improve your credit for electric car leasing? We can help.
With Cheers, you can effortlessly improve your credit score by making monthly payments to a deposit account, all while saving money and planning for emergencies. We offer unparalleled flexibility in repayment plans, allowing you to choose the amount you want to borrow (up to $2,000) and the duration of the loan term (up to 24 months).
Experience hassle-free credit building with Cheers Credit Builder, and secure your electric car lease with confidence today! Sign up now to get started.
