Can I Lease With Bad Credit?
Leasing is a great option for drivers who want access to the latest vehicle makes and models at an affordable price. But if you’re a driver with a poor credit score, is leasing still an option?
Read on to find out why poor credit might not necessarily put an end to your dreams of driving a brand new car.
Car leasing and credit scores
A credit check plays an important role when it comes to leasing a car. It’s a tool used by funders to help them decide whether you qualify for a particular financial service, in this case, a car lease. A good score reassures the leasing company that you'll be able to keep up with the payments. Particularly with the cost of living crisis at the forefront of everyone’s minds, lenders are more mindful of assessing affordability stringently.
The 5 key credit criteria
The 5 biggest factors that affect your credit are character, capacity, capital, collateral and conditions. Your payment history (showing you have a history of repaying funds loaned to you), as well as the amounts owed, length of credit history, new credit and types of credit in use, all help build a picture of whether you'll successfully manage the financial responsibility of a lease agreement.
Check your credit score for free
You can check your credit score for free with one of the UK’s 3 main credit reference companies Equifax, Experian and TransUnion.
It was once the case that obtaining a credit score for free required the participant to sign up to 30-day free trials with the credit agencies, and then cancel before the trial ended to avoid being charged. However there are now more ways to access your credit score for free. Which way you choose to check your report will depend on what you want to receive; you should find that across the main providers you can take up offers ranging from a full credit-monitoring service free for 30 days to a more basic, but free-for-life service.
What might affect my credit rating?
Among other factors, missed, late or defaulted payments on credit cards and other loans will affect your credit score.
If you've been declined finance in the past or have declared bankruptcy, entered into an Individual Voluntary Arrangement (IVA) or have a County Court Judgement (CCJ) then your credit score will be affected.
What do they check?
When you apply for a lease the finance company will check your credit score. They'll look to confirm your personal details such as name, address, date of birth as well as details of your financial history over the last few years including credit limits, loans, overdrafts, mortgages, bankruptcies, CCJs and any debt issues. They'll explore your electoral roll information, financial links to others and whether your identity has been used in any fraud.
How long for a credit check?
Most credit checks take between 24 and 48 hours or sometimes longer if the funder asks for additional information.
If you’re applying for a car lease with Xcite, we'll let you know the outcome once your funder has completed the necessary checks.
Will leasing impact my credit score?
Yes, as another line of credit demanding your resources, it may have a negative initial impact on your score. However, as long as you meet the monthly payments in a timely manner, your lease should help gradually improve your overall credit rating over time as it helps build a picture that you can service a loan without any issues.
What credit score do I need to get approved?
Most finance companies look for a credit score between good and excellent.
If your credit rating falls below, they may ask for additional information in order to see if they can approve your application. They may request further documentation such as several months worth of wage slips as proof of income. Alternatively, they may request a higher upfront initial rental payment.
What happens if I fail the credit checks?
If you don't get approved for finance, then the funder isn't obligated to let you know why they've not accepted this.
If you feel the decision is unfair then you can appeal it. You would need a copy of your credit file in order to do this.
Alternatively, you may be able to apply again with a joint application or with a guarantor, or the funder may agree to a higher upfront payment to reduce your monthly lease payments to a level they feel exposes them to less risk and is more affordable to you.
5 steps to leasing if you may have bad credit
1. Use a budgeting tool
A budgeting tool or App can help you figure out your disposal budget for a lease and associated costs including fuel, maintenance and VAT. It’s wise to use one that syncs with your bank account securely, to get accurate analytics based on actual spends rather than making estimates on what you’re currently spending. Also consider contingency for months where there'll be variations to your spending such as special occasions and holidays.
2. Check your credit score
Utilise free online tools to check your credit score ahead of applying, to gauge if leasing is likely to be straightforward to you; those provided by companies such as Equifax, Experian and TransUnion.
3. Fix credit score inaccuracies
Take steps to fix your credit rating if it’s resulting from any inaccuracy of records on your file. The main credit agencies should have plenty of online advice on how to undertake this.
4. Enhance your credit score
Prior to applying for your lease you can take steps to actively improve your credit rating over time, by maintaining punctual payments to reduce existing debts.
5. Consider a guarantor or joint application
If you've got bad credit but you’re certain after conducting the steps above that you can afford to pay for a car lease, consider if you know a close family member willing to act as a guarantor, with a strong credit score. Alternatively a close family member or spouse may be willing to make a joint application with you. Or you might have access to a large upfront deposit. Depending on your circumstances, one or more of these options could be made available to you by certain funders.