Those with a 650 credit score may find that they are having a hard time buying a car.
While their credit score isn't bad, many lenders are offering terms that seem too difficult to manage. As a result, it is often a wise idea for those with this credit rating to take a chance on leasing. While your parents have probably always told you buying is better than renting, the latter option has its benefits.
Leasing a car means that you rent it for a few years and return it to the dealer when your terms are done. Even better, it allows you the chance to switch out for a different car when your conditions are over. As a result, you can try out multiple vehicles before buying one. Just as importantly, leasing is usually a more natural option to manage for those with a 650 credit score.
That's why it's critical to understand this process and how it can affect your credit score. Leasing a car with a 650 credit score is a smart option because it will be initially more comfortable for you to do and can boost your credit score.
650 Credit Car Lease – Overview
A 650 credit score puts you in an interesting position. While this rating is far from poor, it is also not quite good. In fact, it is often considered the boundary between fair and good credit. As a result, you are in a situation where you could easily boost your credit score or worsen it and end up struggling to get loans and other sources of credit.
Therefore, car dealers are often in a tricky situation when trying to offer you a car. While they are open to working with someone who has a 650 credit rating, they may consider you a subprime borrower. Unfortunately, this may turn some car dealers away from selling you a vehicle. And those who are willing to work with you are probably going to provide loans that are more difficult to accept.
However, this situation can also be beneficial if you are willing to lease a car. That's because car dealers are typically more open to leasing, rather than selling, to people with a 650 credit score. And successfully obtaining a lease can be a great way to slowly, but surely, improve your credit score over the terms of your contract.
That's why I think it is so important to understand this process and to use it to your advantage. To help you in your quest, I've explained how credit scores can affect your car leases, further explored why leasing is a great idea and discussed the leasing process in a detailed manner. With this information, you should be able to get the vehicle lease that you need to improve your credit.
The Basics of Credit Scores and Car Leases
Leasing is not unaffected by the quality of your credit score. Just like when buying a car, your terms will be affected by your credit score. Dropping below 680 typically, but not always, puts you in the subprime area. While 650 isn't too far below that number, you may still be considered a risk by some lenders, and they may struggle to find terms that work for you.
That said, 650 isn't too bad of a position to be in if you want a lease. This fact is particularly true if you have a reliable and steady source of income. Dealers will be impressed by that kind of stability and may be willing to look past a subprime score. While they may not offer the lowest possible rate, they aren't going to scorn you with a terrible offer.
In fact, leasing is typically less affected by your credit score than buying. For example, you aren't attempting to own a vehicle and will have to pay a lot less money. Beyond that, you are also going through a shorter repayment cycle that is usually easier for most people to meet. As a result, it is almost always easier to lease rather than buy when you have a 650 credit score. Beyond that, leasing offers a surprising array of benefits that make it well worth your time and effort.
Why Leasing is Often Wise for Those With 650 Credit
Leasing is typically a great idea for those with a 650 credit rating. For example, it is usually easier for people with this credit score to obtain a lease rather than a title. However, there are many other leasing benefits. Just a few of these include:
- Lower Monthly Payments – As you aren't paying the total cost of a vehicle, your monthly payments will be lower when leasing. Your contract will also be shorter, meaning you will have fewer payments to make.
- Fewer Issues With Maintenance – When you lease a car, you typically get one that is still under warranty. As a result, the dealer has to repair any mechanical failure that you didn't cause. This benefit can be huge for those who are used to driving poor vehicles.
- Decreased Down Payment – Dealers who sell to people with a 650 credit score may want a very high down payment. Thankfully, leasing avoids this issue. Your down payment will typically be a fraction of what you would have to pay when buying. In fact, you may not have to make a down payment at all, depending on the dealer's demands.
As you can see, leasing provides many benefits that you simply cannot ignore. However, I would be unfair if I didn't mention a few of the downsides of leasing. These include a higher interest rate and the need to pay a security deposit. That payment is similar to the deposit you put down on an apartment or home you rent. You will lose it if you fail to keep your car in great shape.
That said, the benefits of leasing easily outweigh the negatives. And leasing can improve your credit and make it possible for you to buy a car or get other types of loans in the future. Understanding why this is the case is critical to making a smart leasing decision.
Why a Lease Can Improve Your Credit
When you lease a vehicle, you are putting yourself in a strong position to improve your credit score. That's because you are opening a new source of credit and expanding your credit history. However, it may take some time before you start to notice these benefits. As a result, you have to be patient and regularly make your payments on time.
In fact, lease payments are considered the same thing as a loan payment by credit scoring companies. They are impressed whenever a person either leases or buys a car and will improve a person's credit score accordingly. However, they won't improve your credit immediately. In fact, the most critical element of this improvement is making your car payments on time during the length of your lending term. Failure to make one or more payments in a timely way could negatively impact your score and offset the benefits.
Beyond that, your improvement will also be affected by the amount that you owe on the vehicle. At first, your 650 credit score may take a temporary and slight hit when you take out a lease. That's because you are taking on a significant amount of credit in a quick fashion. However, timely payments will help to offset this damage and quickly improve your credit. It will not only advance past the initial damage but can even grow to higher levels, such as the 700 range.
That's because car loans and car leases are considered installment credit, rather than revolving credit. Installment credit means that there is a definite end to your payment term. This type of credit is more favorable for your credit score because you aren't stuck in an endless repayment cycle. Beyond that, installment credit also expands your credit types and makes your profile more diverse.
At this point, you're probably ready to jump into a car lease and get started on improving your credit. While I can understand your enthusiasm, it is essential to go through the process to grasp what it entails. Thankfully, leasing a car is usually less complex than buying one. And it will improve your credit score and make it possible for you to buy a car shortly.
Understanding How the Car Leasing Process Works
The car leasing process is an involved one that can be daunting at first. That's why I'm breaking down all the steps here. Thankfully, this process is pretty uniform in the dealership world and won't vary much from one car seller to another. And it will also be the same no matter what your credit score.
That said, you may find that your leasing options are less diverse when you have a 650 credit rating. That's because lenders may be concerned about your ability to make your monthly payments. Unfortunately, that means you are going to have to compromise on a vehicle that may not suit your needs.
Thankfully, you won't have to lease a vehicle for an excessively long period and can swap out after your terms are over. In fact, you can even change to a new car during your leasing period. This switch will obviously affect your lease, however, so make sure you fully understand this process before changing your vehicle.
Step One – Look Through Your Options
After talking to a car dealer about your credit rating, they will identify car models that are available for you to lease. As mentioned above, these choices may be limited based on your credit score. Thankfully, few dealerships are likely to turn you down based on your a 650 credit score. So you should have a decent selection of cars to try out.
Usually, they are going to limit your options to newer models, albeit ones that may not have a lot of bells and whistles. That's because your credit score concerns them. Many dealers aren't quite ready to commit 100 percent to a person with a 650 credit score. Unfortunately, there's not much you can do here but choose one of the vehicles they offer.
Typically, the available options will come in a variety of different model types. For example, you may be able to lease a sedan, truck, SUV, or even a van with a 650 credit score. That said, your options will be focused on just a handful of models, making it essential for you to compromise. Remember that you are also trying to improve your credit score with this temporary compromise.
Step Two – Take Test Drives
Look through the options presented to you by the dealer and take each of them for a test drive. Even if you aren't interested in a specific model, you may end up liking it once you take it for a drive. As you take out each vehicle, make sure you pay attention to various elements of the vehicle. These include visibility, comfort, shock-absorption, braking, and steering. You should also make sure that you enjoy driving it before deciding to lease it.
You should also make sure to park the car somewhere and take a look at it without the dealer staring at you. Check its underbody to get a feel for damage that the dealer might not have noticed. Check the treads of the tires to make sure they aren't going bald. Also, spend the time getting used to the cruise control and the control elements of the vehicle. This process should give you an insight into how it runs.
Step Three – Talk About Safety Features
After your test drives, talk to the dealer about all the safety features that come with each vehicle. Make sure they all have basic options, such as anti-lock brakes and airbags. However, you should also check the steering wheel, ask about electronic stability control, and even side airbags. Try to find a vehicle that has all of these options before negotiating your lease.
Step Four – Start Talking About Leases
At this point, you should narrow your options down to two or three vehicles. Start talking with the dealer about how much it would cost to lease each of them. This step will give you a good idea of what to expect and give you a springboard for your negotiations. Start out by talking about your finances and how much you can afford to spend on a vehicle every month. From here, you and the dealer can work together to find an agreement.
Often, the dealer will be willing to negotiate with you a bit here to seal the deal. For example, you can try to pay a higher down payment to offset some of the monthly payment costs. While this costs you a bit more initially, it will decrease the money you spend during your lease terms. Beyond that, you should also try to tweak the price of the lease to suit your needs. In fact, it is worth breaking down strong negotiating and buying tactics in another section to help improve your chances of success.
Tips for Getting a Better Car Lease With 650 Credit
Shopping around for a vehicle to lease when you have a 650 credit rating is always a complex situation. However, there are a few ways you can streamline this process and make it easier to handle. The following methods have been carefully researched and studied by finance professionals. Each step here should be considered before attempting to lease a vehicle when you have a 650 credit score:
- Check Your Credit – If you've had a 650 credit score for a while, it might be worth getting it checked again before you buy. A soft inquiry can give you an insight into where you stand before you try leasing.
- Dispute Credit Errors – Try to find errors on your credit report and dispute them. Successfully removing erroneous information can improve your credit and boost your chances of leasing success.
- Always Shop Around – Don't buy from the first dealership you find. Take a look at several and get lease offers from all of them. In this way, you can try to use their lease pitches against other dealers to get the best deal.
- Discuss All of Your Income – While a 650 credit score may be a bummer for some dealers, they may be more concerned about your income. If you can show that you have a strong and steady source of income, they may be more willing to create better lending terms.
- Consider a Cosigner – Ask somebody with good credit to cosign on your lease. They can help to offset the concern your dealer may have about your credit and make it easier for you to get high-quality terms.
- Make a Big Down Payment – While most down payments don't top $2,000, paying more than this may impress your dealer. In fact, they might be willing to tweak your terms and make them more favorable. Even better, they may be willing to expand your leasing options to more vehicles.
- Check for Lease Transfers – Few people know that they can actually take on somebody else's lease if they no longer want a vehicle. This process is usually simpler than leasing a car on your own and requires jumping through fewer hoops. Ask them about potential lease transfers or talk to friends and family members about their possible options.
By following these simple steps, you should be able to find a lease that meets your needs. However, it is worth understanding the benefits of buying a car with a 650 credit score. While I strongly recommend leasing for people with this credit score, some may find that buying meets their needs more fully.
Is Buying Better for Those With 650 Credit?
While leasing is an excellent choice for those with a 650 credit score, there are instances in which it can be a major hassle. For instance, you may find that auto dealers are turning down your lease option or are offering lending terms that are way too hard to handle. These situations are typically quite rare but can occur if a dealer is focusing on selling and ready to turn away subprime borrowers.
In this instance, it may be time to start considering buying a car. Unfortunately, your lending options are going to be somewhat limited. While a 650 credit score is still regarded as fair, many lenders will place you in the subprime category. When this happens, your only option to buy a car is going to be a subprime loan. As a result, it is essential to understand these loan types before purchasing a vehicle.
What is a Subprime Loan?
A subprime loan is provided by lenders who are willing to work with people who have low credit scores. They are designed to help people in tough financial situations and can help you buy a car more quickly. However, there are a few issues with a subprime loan. First of all, the interest rate is going to be much higher than a prime loan. That's because your credit score makes you a high-risk borrower.
While you may be able to negotiate a little bit here, you are probably going to end up with a higher interest rate than you want. Unfortunately, there's not much you can do in this situation. If you're going to buy a car in this situation, you're just going to have to bite the bullet and sign up for higher interest rates. Thankfully, this means you will require a lower down payment than leasing. In some instances, you may not have to pay any down payment at all.
That's not the only good news. When you buy a car instead of leasing one, it will be signed over to your name. Unlike with leasing, the car will be yours, as long as you continue to make your monthly payments. Even better, making your car payments on time every month will also improve your credit score and make you a low-risk borrower. As a result, you may be able to renegotiate your terms to make them more suitable for your needs.
The Cons of This Approach
While subprime lending is a great idea for some, there are a few downsides. The interest rate is the most obvious problem here. The interest rate on a subprime loan is going to be much higher than that on a lease. That's because a lease gives you access to a car for a shorter period. As a result, many lenders are willing to entice you into a lease by offering a lower interest rate than you could get when buying a car.
Leasing is also less expensive than buying a vehicle. That's because you are not only paying less interest but making payments for a shorter period. Most lease terms last for 3-5 years, instead of the 7-10 years necessary when buying a car. It is true that you may end up having to pay a relatively hefty down payment when leasing. However, that cost is offset by lower interest rates and lower monthly payment rates.
As a result, you will be more likely to make your car payments and suffer from less financial difficulty. Even better, you will be improving your credit score the whole time. Ultimately, leasing is probably still the best option for somebody with a 650 credit rating. However, buying may not be a bad choice if you don't want to go through the hassle of leasing and just want to own your car.
You Can Do This!
Leasing a car when you have a 650 credit score isn't exactly rocket science. It simply requires a careful approach and an understanding of your financial situation. That said, it can be emotionally difficult to get through the early stages of this process. People with a 650 credit score may be embarrassed or upset that their credit isn't higher and in better shape.
Remember that you aren't alone with your credit score. In fact, a vast majority of people across the nation have a credit range of about 650-690. If you can jump your score even 50 points, you will fall into the prime credit range and will be able to renegotiate your lease on better terms based on your new and better credit score.
But first, you have to follow these simple tips to get to that point. Doing so will put you in a position to not only have a new car but to improve your credit score. So don't hesitate to look into this option if you need a vehicle to drive. It is a win-win if you can continue making your payments and slowly, but surely, improve your credit rating.
Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.