Personal finance

How Car Lease Will Affect Your Credit Score

Are you unsure of leasing a car as you are afraid of the influence it will have on your credit score?

There has always been the question of buying or leasing and these days we need to consider our credit score as well. Leasing is not for everyone but neither is buying.

Car Lease’s Effect Your Credit ScoreBefore taking out a lease or even buying a car you must consider many factors. This includes the monthly payments, your credit score and also your future plans. Work stability and a good credit score will surely be beneficial when applying for a lease and the long-term impact on your credit score will also be a positive one with a lease. Buying a car gives you equity in the long run but does not truly have the same impact on your credit score as a lease does.

If you are planning to buy a home in three to ten years, a car lease will be quite valuable as it gives your credit score a good boost, if handled correctly. Taking out a lease on a car is pretty much like taking out a loan and has a similar bearing on your credit score. Although, if you are planning to purchase a home sooner, you may want to reconsider.

Your Credit Score

Leasing also offers you smaller monthly instalments than what you will have with purchasing a car and usually has no down payment. Your car lease can impact your credit score by as little as 10% or up to 35% which will be determined on the amount of other loans and debt you currently have.

Timely payments are vital and as your balance or term of your lease gets smaller the improvement of your credit score will become more visible. Yourwell-timed payments on your car lease over an extended period will reflect confidently on your credit score. However, missed or late payments will have a negative impact and will reflect for up to two years on your credit history. If you manage your debt well, a car lease’s effect on your credit score will be advantageous.

Buying a car through finance will give you basically the same impact to start off with but once the car finance is paid it will no longer reflect on your credit score. Leasing a car for three years and then leasing again, and again will constantly improve your credit score as long as payments are kept up and made on time.

Negative Credit Score

There is ways in which a car lease will have a negative influence but these depend on you and your financial position.

If you lease a car for a three-year period but have to return the car before the term is up, the lease will have the same influence on your credit score as a personal loan would if you stopped paying it. You will also still be liable for the full outstanding amount as with a loan. Yet, if you return the car and opt for an upgrade there will be no effect on your current credit score.

Lease Shopping

Leases are not the same as applying for car finance and is calculated differently. Your debt to income ration and the cars lease to value ratio will both play a part, as well as the manufacturer or the cars make and model. Your car lease may be easier to get and more affordable if you are willing to compromise. So, take a look at a variety of cars and don’t just settle for the first car offered to you on a lease. With a healthier credit score from the start, your options and payments will be better as well, talk to your car dealer and never feel pushed into making a choice.

There are many benefits to leasing a car when compared to buying and the effect it will have on your credit score is one. It does not immediately make an improvement, in fact, right off the bat it may have a slight negative impact but given time it will have a great positive reaction. This will only happen if you treat your lease the way you should. Making timely payments and keeping up to date on payments is crucial if you want to have a great credit score.


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