Vehicle leasing for bad credit

Worried that you won't be to lease a car with bad credit? We have put together this article to give you all the information you need & your options

If you are looking for a new vehicle, you might be considering leasing.

Leasing is a hugely popular way of getting a new car both privately and through your business, and it is showing no signs of slowing down.

When you lease a car, you have to go through a credit check. If you have a poor credit score, then this can make leasing a car more difficult.

However, it’s not all doom and gloom, and there are solutions. In this article, we look at vehicle leasing for bad credit, the importance of credit checks and what you can do to improve your credit score.

Why is my credit checked when I want to lease a vehicle?

You have to go through a credit check when you lease a car because it is the quickest and most accurate way of knowing whether you can make the monthly payments on a lease contract or not.

When you apply for car finance, your credit score will be checked by an automated approval system. This is mainly due to efficiency, you can imagine how many applications they get a day. Anyway, the auto-approval system will either approve your application or reject it. The higher your credit score, the more likely you are to be approved.

This is all down to the fact that the finance house need to know if you are going to make the monthly payments and the easiest way to do that is by looking at your credit score.

What is in a credit report?

If the finance house goes by your credit score, then it’s worth knowing what’s in your credit report, right? There are a number of things that are shown in your credit report, these include;

  • Your name and date of birth
  • Your credit accounts and when they were opened
    • This also includes accounts that have been closed and settled in the past six years
  • Electoral roll information
    • Including past addresses
  • Details of your current account overdraft
  • Whether you have missed payments or been late in making repayments
    • Including how many times this has happened
Discover the must-have information regarding Credit Checks
  • Information on credit limits and loan amounts on mortgages, credit cards and other loans
  • Any financial links to other people
  • Whether you have a history of debt problems
    • These go back six years and includes bankruptcies and CCJs
  • Whether your identity has been used for fraud

So there’s quite a lot to get through. Most lenders will focus on repayments, if you have a history of debt and how many credit accounts you already have. They will also look at whether the information you have given them matches up with what is on your credit report, including your address on the electoral roll.

picture of a business man checking his phone and laptop that's showing a good credit score

Your credit report says a lot about you and your credit history, so you can understand why it is the best way to determine whether you are going to meet monthly payments.

Your credit report says a lot about you and your credit history, so you can understand why it is the best way to determine whether you are going to meet monthly payments.

Can I lease a vehicle with bad credit?

If you’ve checked your credit score and it appears that you have bad credit, it can seem like your vehicle leasing hopes have been dashed. However, this is not always the case.

We will admit that vehicle leasing for bad credit can be more complicated and more expensive, but it is possible.

If the auto-approval system rejects your application based on your credit score, a human will take a look. They will look at your credit score, your payment history and how much borrowing you have.

However, if you have a poor credit score and more recent defaults, then it is a bit more difficult. You will need to go through an established broker who has experience dealing with customers who have bad credit. You will need to be honest with them from the word go, and tell them that you have bad credit. This is so you are not put through unnecessary credit checks (which can lower your credit score even more) and also so that the vehicle broker knows which questions to ask and ensure that they are doing the right thing for you.

When you do speak to a vehicle broker you need to make sure that they are experienced and are trustworthy, you can read more about how to tell if a vehicle broker is trustworthy here.

What are my options for vehicle leasing for bad credit?

There is a misconception that if you have bad credit, then you will have to downscale your dreams of owning the perfect car.

While restrictions may apply, they won’t be as bad as you might think. If you have bad credit then you are a higher risk to the funder. There are specialist funders out there to assist people with bad credit.  If they are prepared to consider your application, then your monthly payments may increase and you may also be asked to put down a larger deposit for their own peace of mind. That said, if you have a regular and secure income then a specialist funder may be prepared to consider your application.

Vehicles all lined up with a bright sun in the background

You will not be paying more than you can afford (according to the Financial Conduct Authority’s policy – Treating Customers Fairly) and lenders have to be able to produce evidence that you can afford the monthly payments.

So you can get a vehicle lease if you have bad credit. However, you must go through a vehicle broker that is experienced and trustworthy, and have a clear idea of your situation. You must ensure that you are honest from the offset and your vehicle broker knows your situation. The monthly payments may be higher, and you may be asked to put down more as a deposit, but there is still a chance that you can lease a vehicle with bad credit.

What affects credit score?

There are a lot of things that affect a credit score. For example;

  • If you are on the electoral roll
  • How long you have been at your residence
  • Defaults
  • Paying credit agreements off and on time
  • If you have a mortgage
  • Personal loans
  • If you have a credit card
    • And how much of that credit card you pay off each month
  • If you have any CCJ’s
  • IVA’s
  • Mail order catalogue purchases
  • Utility bill payments
  • How many credit card purchases you have made in the last six months

Will leasing affect my credit score?

This is a question we get asked quite often and the answer is yes, leasing will affect your credit score. This is because a lease is essentially the same as a car loan.

35% of your credit score is based on your payment history. This means that leasing a car can have a significant impact on your credit score.

However, this doesn’t have to be a bad thing. When you make all of your lease payments on time then your credit score will start to improve. Therefore, leasing can actually be a great way of improving your credit score.

a poor & good scale representing a credit score that showing 748 and the needle in the green area

If you miss a payment though, your score will reflect that. It should be noted that the fact that it is a lease scheme will have no additional impact on your credit score. It’s the same as other types of repayment schemes.

You can read more about how leasing affects your credit score here.

How can I improve my credit score?

There are a number of ways that you can improve your credit score. For example;

  • Keep your credit card balances low
  • Having a high debt-to-credit ratio could be a sign that you are facing financial difficulties
  • Only open new accounts if you need them
    • If you have too many credit accounts then this can have a detrimental effect on your credit score
  • Pay your bills on time
  • Open a new account
    • Okay, so we said don’t open too many but having too few is bad for your credit score so you should have a healthy mix of accounts
  • Pay off your debt

Those are some of the ways in which you can improve your credit score.

Company vehicle leasing for bad credit

Something we have yet to touch upon in this article is if you have bad credit and want to lease a company vehicle. Is this possible?

If it is a Limited Company and the Director has bad credit, then there are funders who will look at the company’s credit score, as long as the company has a better credit score then the Director’s. That said, there are some funders who will look at the Director’s credit score regardless of the company’s credit score and financial standing.

business man with a beard in a suit driving his company lease car

In most circumstances, you will provide your latest set of financial accounts, of which are hopefully showing a positive net worth. You may also be asked to provide your latest bank statements and proof of address and identification for the main Directors.

If you or your company has bad credit, then we advise talking to an experienced vehicle broker who will be able to advise you and your business. You can read about van leasing for bad credit here.

In conclusion, if you have bad credit then this doesn’t mean that you cannot lease a car. It may be more difficult however, and you may have to pay more in monthly payments and put down more initially. The reason credit is so important when it comes to leasing is because the finance house needs to know that you are going to be able to make the monthly payments, and therefore use your credit score to determine that. Leasing can in fact improve your credit score, as long as you make the payments on time. Ultimately, if you have bad credit and you want a vehicle lease you will need to talk to an experienced and trustworthy vehicle broker. They will have the experience to help you out and if you are honest from the outset, will be able to provide you with the guidance that you need.

orange illustration of a credit card going into the machine with the title still worried about your credit score? Explore how leasing a car can improve it
Rachel Richardson

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