Can I Lease a Car with Bad Credit?

Leasing a new car is becoming more and more popular for lots of reasons. The biggest draw is that monthly payments with a lease are typically much lower than any finance repayment options or finding a huge sum to pay upfront. Lease payments only cover the car’s depreciation during the lease term and not the full value of the car. Leasing a car also allows people to drive newer models every few years without the commitment of a long-term purchase – which appeals to those drawn to the latest tech and features. There are other significant benefits in tax savings, no resale hassle and warranty coverage.

However, the leasing of a car is a little like having a loan or a credit card and the process does involve the investigation of your financial past and a credit check which, if you’ve experienced problems with your credit history, can be a daunting or worrying process. Let’s look at whether it’s possible to lease a car with a bad credit rating and what you need to know about it before you leap in.

Understanding car leasing: basics and benefits

Leasing a car, whether for personal or business purposes is a very straightforward process – enabling drivers to access vehicles they probably couldn’t afford to purchase outright - or would need to get a traditional finance agreement which may have high monthly repayment schedules. A car lease provides the driver with peace of mind since, having a new vehicle, there isn’t likely to be much that would go wrong with it – unlike the uncertainty of purchasing a second-hand vehicle – and generally the car is covered by the manufacturer’s warranty.

The leasing process takes several simple steps from choosing the vehicle and mileage of the car to the finance check, and agreement of repayment terms to the delivery of your vehicle to your door. The main difference with leasing is you don’t own the vehicle at the end of the lease but return it to the finance provider. At the end of the lease, you have the option to take out a new lease deal on a newer vehicle, starting the cycle again and without the hassle of selling a second-hand car.

What is my credit score?

A credit score is a numerical representation of how creditworthy a person is and is the scale lenders use to evaluate the risk of lending money or extending credit. A credit score is based on an individual’s credit history, and this includes information such as the number of accounts, total levels of debt, repayment history, mortgages and more – indicating the likelihood of you repaying loans in a timely fashion.

A credit score is based on the following approximate ranges, and it’s worth noting that credit scoring models vary between providers, but typical ranges include:

• Excellent: 800-850
• Very good: 740-799
• Good: 600-739
• Fair: 580-669
• Poor: 300-579

How is my credit score evaluated?

There are several main factors to evaluating a credit score and these include payment history – whether you’ve paid your bills on time or late and, if they were late, how late!

The amount of credit you owe, length of credit history as well and the mix of credit – showing you can manage different types of credit, such as mortgages, credit cards and other loans – all contribute to the evaluation of your credit score. Lots of applications for credit can negatively impact your credit score, as it can indicate a higher level of risk to a lender.

How can I improve my credit score?

Improving your credit score typically takes time, some things to consider are:

• Make payments on time for bills and loans.
• Reduce debt - especially high-interest debt as lowering your credit utilisation ratio, the amount of credit you’re using compared to your credit limit, can help.
• Keep old credit accounts open – the age of your credit history matters, so keep older accounts open even if you don’t use them.
• Limit new credit applications – time you apply for credit, it can cause a dip in your score.
• Regularly monitor your credit report.
• Diversify your credit – having a mix of credit types, such as rent, mortgage, store cards, credit cards and loans, can improve your score - although don’t open new accounts unless you really need them.
• Stick to a budget – manage your finances effectively through budgeting to not overspend and to ensure you have funds available for debt and loan repayments.

Factors funders may consider when assessing lease applications

Having a poor credit rating doesn’t automatically disqualify someone from leasing a car. While every application is assessed by the funder, there are some factors that may be considered during the process:

Upfront payments

Funders may take larger initial payments into account as part of their risk assessment. This is not a requirement, but it is one of the factors that can be considered.

Affordability of the lease

Lease providers typically assess monthly payments against income and existing financial commitments. More affordable deals may reduce perceived risk in the application process.

Guarantors or co-signers

In some cases, funders may allow a guarantor or co-signer to share responsibility for the lease. This is considered as part of the overall assessment of risk.

Credit score

A higher credit score can give funders more confidence, but applications are still assessed on a case-by-case basis. Credit history is just one of many factors in the approval process.

All lease applications are subject to credit approval by the funder. This information is provided for general purposes only and does not constitute personal advice.

What things do I need to consider before applying for a lease with a poor credit rating?

There are a few things to make sure you’ve fully considered before you begin the application process and sign up for an agreement.

• Can I afford to run the car? – you’ll need to be able to afford the payments of the lease deal as well as insurance, - and some general maintenance such as tyres, servicing and MOT – not to mention fuel costs.
• Do I really need a car? – if you will only need a car occasionally, it may be worth considering other options, such as public transport or car sharing. If you need to have a car – it may be worth considering a smaller one, which may be less expensive.
• Do I have enough money for the initial rental? - the larger the initial rental you can pay, the lower the monthly payments will be, so you’re better off working out if you have the funds and can afford this before you apply.
• Will I need a large mileage limit? – the greater the mileage limit on your lease deal, the higher the payments will be, and it’s important to calculate the number of miles accurately.

Does leasing hurt your credit score?

The short answer is no, just as long as you keep on top of your contractual repayments each month, paying them in full. If you encounter any repayment issues throughout your leasing contract, it will most likely have a negative effect on your credit score moving forward.

How can Gateway2Lease help me get a car lease deal with a poor credit rating?

Even if your credit rating isn’t bad, but only at an acceptable level, some of the practices suggested here can boost your score to an even better level. Using services such as Experian or Equifax can help you check your score before applying for a lease and prevent you from being declined. Checking your credit score and taking steps to boost it may lead to a successful car lease application, and you getting into the car of your dreams.

If you have concerns about your eligibility for a lease deal and your credit rating, get in touch with a member of our expert team who can help you.