Does Leasing a Car Build Credit?

If you’re like many of us, you probably don’t have the cash to buy a car outright or just don’t want to deplete your savings to buy a car and so you’ve chosen to lease a car. Leasing a car is an excellent option for most, and we often get asked whether leasing a car builds credit? We will answer this question in much detail below.

Does Leasing a Car Build Credit?

Yes, leasing a car can help you build your credit. When you lease a car, your lease will appear on your credit report as an installment loan, so if you make your payments on time, it will help you build great credit, however, if you miss payments on your car lease, you can cause significant damage to your credit.

Leasing a car is just as helpful in building your credit as is financing a car. So, if you’re looking to build your credit by leasing a car, you’re on the right path.

Why Does Leasing a Car Build Credit?

Leasing a car builds credit because your car lease will appear as an installment account on your credit report. The account will have a balance that’s equal to the total payments that you must make on the lease. Whenever you make a payment on your lease, the payment is reported to the credit reporting bureaus, building your credit.

For example, if you leased a Nissan Altima for $200 a month for 36 months, an installment account with a balance of $7,200 will appear on your credit report. As you make payments on your lease account, you will be paying down this balance and building credit.

That said, since your car lease is reported to the credit reporting bureaus, just as making payments will help you build your credit, if you miss even a single payment on your car lease, you will cause significant damage to your credit score.

Usually, if you miss a payment on a lease, you will have a few days from your due date to make the payment, however, if you’re 30 days or more late on making a car lease payment, a missed payment mark will be added to your credit report, damaging your credit score.

Should You Buy or Lease a Car To Build Your Credit?

Buying and Leasing a car will help your credit in the same manner. This is so because buying or leasing a car result in a similar account being added to your credit report, which is an installment account.

The only difference is that if you buy a car, the balance on the account will be significantly higher unless you make a large down payment when financing your car.

Whenever you make payments to finance your car or lease it, you will be building your credit because both lease and finance payments are reported to the credit reporting bureaus. So, if you make your payments in full and on time, you will be building your credit.

Benefits & Disadvantages of Leasing a Car vs Buying a Car

Benefits

Here are some of the benefits of leasing a car:

Less Costly

The biggest benefit of leasing a car vs buying a car is that leasing a car is often cheaper than financing a car, your monthly payments are usually lower with a lease and the down payment to get into a lease is often lower than financing a car.

That said, one of the downsides to leasing a car is that you must return the car to the dealership at the end of your lease. When your lease is up, you will have the opportunity to either purchase the car or return it to the dealership.

Lower Repair & Maintenance Cost

The second benefit of leasing a car is the lower cost of repairs. Most people who lease cars pay $0 for repairs to their automobile because new cars come with a manufacturer’s warranty that covers the car for 4 to 5 years from the date of purchase or lease. So, if the car breaks down, the dealership will often cover the cost of towing and repairing the vehicle. Also, some automakers cover the cost of maintenance on new cars for the first few years, so you may also benefit from lower maintenance costs.

Latest Model

The third benefit of leasing a car is that you’ll always have the latest model. Although not everyone cares to have the latest and greatest model, many people do enjoy driving the newest models that automakers have to offer.

Easier to Return Your Car

If you have leased a car, you know that it is very easy to return your vehicle at the end of your lease. You don’t have to do any negotiation as everything is usually agreed upon at the start of the lease. When the time comes to return the vehicle, you simply head over to the dealership, they inspect the vehicle and end your lease. Most dealerships will try to get you into a new lease, but the return process is quite easy.

Disadvantages

Here are some disadvantages of leasing a car:

Restrictions

When you lease a car, there are some rules on what you can and cannot do to the car. For example, you are usually prohibited from modifying or making major changes to the car. Also, when you first lease a car, you agree that you’re only permitted to drive a certain amount of miles. Usually, you’re permitted to drive 10,000 to 12,000. If you’ve driven more miles than initially agreed upon, you will be charged a fee for every extra mile that you drove.

Ownership

When you lease a car, even though your name appears on the vehicle registration, you don’t own the car. So, when you’re finished with your lease, you must return the car. However, when you finance a car and you finish making payments on your car, you own the car.

No Equity

When you lease a car, at the end of the lease you’re left with nothing since you are required to return the car. However, when you finance a car, at the end of your loan, you’re left with a car that has some equity. You can use the car as a down payment for your next car.

Credit Score To Lease a Car

When you head over to a dealership to lease a car, you must have good credit. Since a car lease requires you to borrow money to pay the dealership, you must have good credit. So, if you do not have a good credit score, you must improve it to be able to lease a car.

To improve your credit score, you should make payments on your credit cards, auto loans, student loans, and home mortgage on time. Also, reduce the balances on all of your credit accounts to improve your credit score.

The third thing you can do to improve your credit score is to avoid applying for too many credit cards within a short period of time, Also, you should periodically check your credit report and dispute any inaccurate information that appears on it.

In the event that you need a car and don’t have the time so significantly improve your credit score, you should consider finding a cosigner to sign the car lease with you.

Many people who have bad credit rely on a cosigner to sign the loan with them in order to get approved. That said, the cosigner must have good credit.

That said, if a cosigners signs the car lease with you, you should keep in mind that the cosigner is responsible for making payments on the lease if you fail to do so.

If you fail to make payments on the car lease and the cosigner refuses to make payments, both your credit and the cosigners credit will suffer significant damage.

Credit Score Planet Frequently Asked Questions

1. Does leasing a car help your credit?

Yes, if you lease a car and you make all of your payments in full and on time, your car lease will definitely help you build good credit. However, if you miss payments, you will cause significant damage to your credit.

2. What does leasing a car do to your credit?

Leasing a car can either help your credit or damage it depending on how you handle the lease. When you lease a car, an installment account for your lease is added to your credit report. If you make your car lease payments on time, you will build strong credit, however, if you do not make your payments, you will cause significant damage to your credit.

3. Can I lease a car with a low credit score?

It’s difficult to lease a car with a low credit score because auto dealers will look at your credit before leasing a car. You must have decent credit to qualify for a car lease.

4. Do I have to make a down payment on a loan?

Not necessarily. If you have strong credit, some dealerships will allow you to lease a car without making a down payment, while other dealerships may you require you to make a down payment. You should ask the dealership you’re going to whether they have $0 down leases.

5.Does a car lease go on your credit?

Yes, your car lease will appear on your credit report as an installment account. The installment account will have a balance that’s equivalent to all of the payments on your lease. As you pay your car payment, you’ll be paying down the payment on your lease installment account.