So, you're thinking of leasing a car?
Thing is, a poor credit score has the potential to slam the brakes on a potential lease agreement.
But not to worry . . . there's still a chance of being approved with poor credit, and if not, you can always do things like enter into a joint lease agreement or pay more upfront to make up for it.
Still, it doesn't hurt to know ways to improve your credit score and find out how it's ranked. That way, you'll have the best possible chance of getting approved for a lease deal.
Why Do I Need a Credit Check to Lease a Car?
Because just like PCP and Hire Purchase, leasing a car is a form of credit whereby you are 'borrowing' a large sum of money (the total price of the car) whilst only paying a small amount of it back each month. So credit companies view it in the same way as a loan, essentially.
And one of the ways to determine whether you'll be able to pay that loan off is through a credit check, which shows your financial reliability and how good you are at paying off loans and making the monthly payments.
A credit check is arguably the best way to check if you are financially stable enough to pay off the monthly instalments. It's also beneficial for YOU as well, as it helps you know whether you're in a comfortable enough financial position, if you don't know already.
Can You Lease a Car Without a Credit Check?
No, and you'll find that this is pretty much the same all across the board for all leasing companies.
A credit check is very much mandatory when it comes to leasing agreements.
Where Can I Check My Credit Score?
There are a number of credit reference companies that let you carry out a 'soft check' on your credit rating. These include:
What are Lenders Looking For On My Credit Report?
It's quite simple really . . . lenders want to know that you're reliable and on the ball when it comes to making payments on time.
As such, they'll want to see if you've missed any payments on any other credit/loan that you've committed to. They'll also look at how many different credit accounts you hold, as well as check for any history of debt (which would be a massive red flag).
What Is a Soft Credit Check?
A soft credit check is when your credit score isn't negatively affected by the check.
It's a great way to get a glimpse of how healthy or unhealthy your credit rating is and it's always a great place to start. Your credit score isn't impacted because the check isn't logged on your credit history. The only downside is that the check itself is more limited than a hard credit check.
When leasing companies carry out a soft credit check on your credit score, only a select amount of information is analysed and displayed. So it's not a full credit history Rather than a full credit history. An example of when a soft credit check is performed is when a creditor seeks to confirm your identity for an identity check.
Soft credit checks are also beneficial in that they remain invisible to other companies. The good thing about this is that you can use a soft credit check to get an idea of your initial eligibility for credit before you actually submit the application. Also, as these checks aren't officially recorded on your credit history, you can request one for how many times you like.
What Is a Hard Credit Check?
A hard credit check is when things get a little more real.
A hard credit check shows your full credit history and your credit score WILL be impacted, but not by a huge amount.
You'd generally carry out a hard credit check whenever you apply for a loan, mortgage, a phone contract, or a credit card. It's the best way for a company to determine if you'll be able to make the payments. Obviously, a hard credit check will be logged on your credit history and as such it will be visible to other companies. Which is why your credit score is affected.
Be careful not to perform too many hard credit checks in a short space of time. That can suggest you're applying for a lot of loans and implies financial instability on your part, and that you 'need' credit to constantly pay for things.
How long do hard credit checks stay on your credit report? Usually for up to a year, though it can be longer. Debt checks for example can remain visible for up to 6 years.
What Do Finance Companies See In My Credit Report?
Your full name and date of birth: The names that you go by as well as any previous names. Also, maiden names too.
Current and previous address history: Current and previous addresses all included. Usually covering the last 3 to 5 years, though this may vary.
Your financial history: Usually covering the period of last 6 years, including mortgages, loans, overdrafts, credit limits, bankruptcies, CCJs or any debt issues.
Electoral roll information: The address in your credit report should match your current address details.
Financial links to other people: Looking into your ties to other people regarding joint loans and bank accounts etc., and how these may affect your capacity to take on a lease deal.
Where Should My Credit Score Rank If I Want to Lease a Car?
Okay, so credit scores are ranked by number, and there's different grades of 'reliability' in accordance with the number range.
Typically, you'll need a credit rating of at least 700 in order to be accepted for a car lease deal and pass the credit check, but it can vary depending on the individual leasing company.
Most companies have their own credit scoring systems too, meaning you might get different answers from different lenders on what exactly your score is.
Here's a general overview of the score charts and how the numbers are graded. Enough below 'good' and you're probably going to fail the credit check and not be accepted for a lease.
300 - 599: very bad
600 - 649: poor
650 - 699: fair
700 - 749: good
750 - 799: very good
800 - 850: excellent
What Cars Can I Lease With a Bad Credit Rating?
If you've got a poor credit rating, you could still be able to lease a car, but your choice of lease vehicle will be much more limited, so best lower your expectations. And you'll also likely be unable to add on any leasing 'extras' to your car. The interest that you pay with bad credit will also be higher, therefore increasing your monthly payments.
But not to worry . . . there's no set-in-stone absolute rule about someone with bad credit not being able to lease a car. What matters most of the value of the car and the value of the contract.
That being the case, applying to lease a cheaper car will obviously improve your chances with a poor credit score.
More expensive cars are riskier investments. A leasing company will be much more willing to let you lease a £13,000 Ford Fiesta as opposed to a £35,000 BMW.
If you crash or write off the Ford Fiesta, then that's much less money down the drain for the leasing company. Not ideal, but not the end of the world either.
How Long Does It Take to Improve Your Credit Score?
Improving your credit score is all about playing the long game.
Although there are a few 'quick wins', it can take months, even years, to see a substantial improvement in your credit score. Especially if it's very bad to begin with.
Ultimately, a lot of it depends upon your unique financial situation.
How Can I Improve My Credit Rating Before Leasing a Car?
Acquire a copy of your credit report – This can be done through the above credit reference agencies like Equifax, Callcredit and Experian. It might be that there's some inaccuracies on your report, in which case they can be altered for a quick credit win.
Pay all of your bills on time – Late or defaulted payments are a big no-no when it comes to credit, so make sure you're on top of all your bills and that they're paid on time. Use Direct Debit when possible so that you're not manually sorting through them all with the risk of forgetting a payment date.
Get on the Electoral Roll – Another quick credit win. The simple fact of being on the electoral roll can make you seem a more reliable candidate. Just make sure that there are no mistakes regarding your address or the spelling of your name.
Do not take out more than one loan at a time – By limiting the number of loans that you have at any one time, you're showing that your payments are manageable and that you aren't overburdened with credit.
Does Leasing A Car Help Your Credit Score?
Generally, yes.
As soon as you're accepted for a car lease deal, your credit score is going to take a minor hit. This is because you've just taken out credit and it's effectively 'debt'.
However, it'll then gradually build up as long as you continue to make the monthly payments on time.
In turn, that should also make it easier for you to be accepted for credit from other organisations and providers in the future. Yay!
Can a Car Lease Make My Credit Score Worse?
Only if you mismanage the lease and miss payments. Just like with any other loan or form of credit.
At the end of the day, taking out a car lease is a major financial obligation, so not honouring that obligation (for whatever reason) is of course going to have negative consequences.
Can I Use a Guarantor If I Have No Credit History to Lease a Car?
Yes, it's possible, but far from guaranteed.
A car lease guarantor is simply someone who agrees to step in and continue paying your monthly instalments in the event that you hit hard times or aren't able to afford them. Usually, your guarantor will be a family member such as a parent, and preferably someone who's also a homeowner with a strong credit report (which providers will look favourably upon)
Having a car leasing guarantor makes you a stronger candidate as it means the payments will continue to be made.
Unfortunately, the majority of car finance providers don't tend to accept guarantors, but there's been plenty of cases where some have considered the offer.
Other Options for Bad Credit Car Leasing
Joint lease agreement: In the case of a joint application, two people apply for the new vehicle lease together, meaning that their incomes and credit scores are combined. If accepted, both parties will be responsible for the car leasing monthly payments. They'll usually need to live at the same address.
Lease transfers: Yes, it's possible to take over a car lease for someone else. You'll still have to undergo a credit check, but it'll likely be less stringent than if you were the one taking out the initial lease.
Longer or shorter contract: A longer contract means that you're paying less each month and spreading out the costs, meaning you can better manage your budget. A shorter contract means that you might be paying more, but it's over fairly quickly. Both can mean less risk for yourself and for the leasing company.
Paying more upfront: If you've got bad credit, then lenders might consider you if you pay a larger upfront initial rental at the start of the contract. This payments will typically equate to 9-12 months' worth of instalments. It's costly, but it means lenders are already getting a large chunk of the money back before they take a risk on you.
Summary
In conclusion, a bad credit rating doesn't make it impossible to lease a car, but it's far from ideal.
So if you have a good credit score, great. If you don't, you hopefully now know how to improve it!
FAQs
Do you need credit score for car lease?
Yes, pretty much every car leasing company requires you to undergo a credit check.
Can you get a lease car if you have bad credit?
It's possible, but it can be a bit more difficult.
What is the lowest credit score to lease a car?
There's no set answer here, as it can vary according to each car leasing company and lender. But you generally want a score of at least 700.