car lease, income, and credit score

March 16, 2008 10:42 PM

How much is a high income factoredd into a car lease loan decision?

I want to lease a new Honda Accord. My credit isn't that great due to some missed payments back in law school and about $80K in student loan debt. Other than that I only have $4K in a car debt, but no credit card debt. My score is about 630. I make $100K/yr w/ a discretionary bonus. I'd be willing to put the 20% down (which the down payment is capped at), plus the 1st months payment and security deposit.

Does anyone know well enough how car lease companies decide whether to loan money for a lease? I understand that generally you need a pretty high credit score, but how much do they factor in income?

posted by dannon205 to travel & transportation (3 comments total)

Sorry if this isn't the most helpful thing in the world, since I have no experience with this exact kind of loan, but they should take a good long look at your income. A common way of determining whether to loan money is to compare cash inflows and outflows- will the borrow be able to meet the monthly payments given her current monthly take-home and current other debt that needs to be serviced on a monthly basis? If you've got a lot of money coming in every month now, they will be less concerned with some missed payments back when you didn't have a lot of money coming in. The low credit score will probably get you a higher interest rate, though.

Not knowing your financial situation and the kind of car you're trying to get this might be a bit premature, but with that kind of income and debt structure you should be able to make the lease payments on your own without the loan, right? I mean, that's kind of what a lease is- you pay for the car over a period of time just like a loan. If you take a loan to pay a lease you are essentially paying interest to the car company in the price of the lease AND interest to the lender. A lease doesn't usually make a huge amount of economic sense to begin with, but I know there can be good reasons to go that route. See if you can't try to not add to that irrationality.
posted by ohio at 5:20 AM on March 17, 2008

630 should be fine - I've borrowed with less down back when I had a 600, although that was a loan, not a lease. You also may want to consider buying as opposed to leasing - the lending standards are somewhat lower from what I understand, and it's a much better situation for you anyway - leases are usually structured to favor the car company in the extreme - much more so than a straight purchase.
posted by deadmessenger at 5:24 AM on March 17, 2008

The short answer is: not very much. Low income can lose you a rate program for which your credit score qualifies you, but high income will not usually gain you a rate program for which you are disqualified by way of credit score. Worse yet, lease programs tend to be less flexible on the "money factor" (the interest rate variable which, along with residual value variable, determines lease pricing) than purchase financing can be with the interest rate.

You might want to look to purchase, rather than lease, because there can be more flexibility in underwriting, and decreasing the loan-to-value ratio does improve the product for which you're qualified. A higher down-payment could graduate you from sub-prime to near-prime and chop your interest rate nearly in half.
posted by MattD at 5:36 AM on March 17, 2008