We are sometimes asked whether leasing a car can help you build credit and the answer is, yes it can. In terms of credit reports and credit scores, the effect is the same whether you choose to purchase or lease your vehicle. However, there may be other financial considerations when deciding whether to lease instead of buy.
Leasing a Car Can Help You Build Credit
When you lease a car, the creditor will assign fixed monthly payments to be paid over a set number of months, and the account will appear on your credit report as an installment account. As long as your lender reports to Experian and all your payments are made in a timely manner, an auto lease can certainly help to build or establish your credit history.
Things to Consider When Leasing a Vehicle
Unlike a traditional auto loan, leasing a car requires that you turn the car back in when the lease ends. There may be additional charges at the end of the lease, such as mileage fees or fees to cover wear and tear on the vehicle. And, during the lease term, you are responsible for all of the maintenance costs, taxes and so on.
You might have the option to keep the car, but to do so you usually must make one large balloon payment at the end of the lease period. If you don't have the funds, you will have to lease or purchase another vehicle, which likely means another few years of monthly payments.
With traditional auto loans, the car is yours once the loan is paid in full. Money you were putting towards your car payment can then be used for other things instead, such as paying off other debts or building your savings account.
There are pros to leasing a vehicle as well. Leasing a vehicle often results in a lower monthly payment than you would have if you were purchasing that same vehicle. If the amount of the monthly payment is a concern and having a lower payment will mean less financial strain, it may make more sense to lease a vehicle. The lower payment might also free up funds to put toward other debts, assuming you don't lease more car than you could otherwise afford.
Either way, making consistent payments on the account will contribute towards building a stronger credit history.
Thanks for asking,
The "Ask Experian" Team