Purchasing a vehicle is generally considered the second most expensive asset that consumers invest their money in, with the first being property. With this in mind, many of us will use smaller clothing or grocery accounts and various other monthly payments to build a credit profile in order to get favourable lending rates. When looking at real estate, people often have built up a credit score using the aforementioned smaller monthly payments and indeed, a vehicle payment of some description. The question is, will leasing a car afford you the same credit score benefits as a hire purchase scenario?
What is leasing?
Before we determine this, let's take a look at what leasing is, exactly. In essence, vehicle leasing is a long-term rental of a vehicle for a fixed period at an agreed monthly rate. The lease term varies, but is usually between two to four years, after which the vehicle must be returned to the leasing company or purchased for the residual value owed. An important consideration is that there are often mileage restrictions placed on the leased vehicle and hefty penalties for exceeding these restrictions. The obvious benefit of leasing is a lower monthly payment, or the ability to drive a better car for a lower rate while insurance is often included in the price, too.
Does leasing a car affect your credit score?
In short, yes, leasing will either positively or negatively affect your credit score simply because the agreement, like a property rental, will see a fixed monthly payment come off of your account. The creditor or leasing agency in this instance will therefore report your successful or unsuccessful monthly payments to the credit bureau, either improving or damaging your credit record. Much like a traditional hire purchase loan agreement, your ability to consistently make the monthly payments for the stipulated time frame will determine how the lease affects your credit record.
