Can I lease a car with bad credit?
Bad credit isn’t the roadblock it once was if you’re looking to lease a new or used car.
There’s no doubt, the better your credit score, the more likelihood of being accepted for car finance. But just because you have bad credit doesn’t mean there aren’t options available to you.
However, before we get into those, it’s important to understand what’s actually meant by the phrase bad credit.
Your credit score
Your credit score is a numerical round-up of how good your credit history is. It also shows lenders how much of a risk you are as a borrower.
If you have credit in your name, a credit card, loan or mortgage, for example, how responsible you’ve been with those finances plays a big part in your credit score. But they’re not the only things.
If you’re not registered on the electoral roll, that’ll also impact your credit score. As will being tied to anyone financially – for example, if you have a joint mortgage with a partner. Their credit history then becomes part of yours.
Why does a credit score matter?
A credit score matters when applying for finance as it’s one of the tools lenders use to decide whether you’re ‘creditworthy’.
Once you submit your finance application, they’ll look at your credit score, payment history, as well as other factors – such as how often you move home – and make a decision on whether to lend you the money you’ve requested.
Before you apply for car finance, you should always check your credit score and report. Not only to gauge whether you think you’ll be accepted but also to make sure there are no errors on it which could prove costly.
For example, if you’re registered to vote at your current address but the correct electoral roll information isn’t visible on your credit report – which is quite common – then you can request it be changed.
It may only seem a small insignificance, but it can have a sizeable impact.
And it’s easy to do, too. Several online companies can provide your credit score for free.
Experian, ClearScore, Credit Karma and Totally Money are just four – all of which can provide crucial information to you before you apply for car finance.
It’s also important to note, though, not to be too shocked if your scores differ on each site you use.
Each credit score checker is tied to a credit reference agency. In the UK, there are three; Experian, Equifax and TransUnion.
And each credit reference agency uses different criteria to give their score. Lenders will likely use the information supplied by one of those three to make their decision when you apply for car finance.
Leasing with bad credit
If you’ve checked your score and it’s a little on the low side, or you know of events in the past that have damaged your score – like missing payments – all hope is not lost.
Nowadays, lenders are aware that financial circumstances can be difficult, and sometimes your score can be damaged by no fault of your own.
Because of that, there are now more lenders available who specialise in helping those with bad credit.
So, even if you have bad credit, there may be a lender out there who’s willing to help you with your car finance application.
However, you should also be aware that because you’re deemed a greater risk as a borrower if you have bad credit, you’ll usually have to pay more in interest than you would with good credit. That means your monthly payments will be higher.
4 factors that will affect your application
As we’ve already touched on, your credit score and financial history have a big impact on whether you’ll be accepted for car finance.
However, there are other attributes which can also affect your application.
1. The type of car you’re looking for
If you have bad credit, you need to be realistic about the type of vehicle you’re applying for. It’s unlikely you’ll be accepted for a £70,000 Ranger Rover, for example.
If you look for something cheaper, you have to borrow less to cover the cost. And borrowing less may make you look more favourable to a lender as it’s less of a risk for them.
2. Affordability
As well as your credit score, a lender will also want to know how much you earn and your living situation.
From that information, they’ll estimate how much disposable income you have, which will also contribute to whether you’ll be accepted and how much you can borrow.
For example, if you have £250 of disposable income per month, the lender is unlikely to accept you on a £400-a-month car finance agreement – simply because you can’t afford it.
And it’s also important you think about this factor honestly before you apply.
If you’re unsure whether you can keep up with the monthly payments, look for something cheaper or wait until the car you want becomes more affordable.
If you miss payments – because the car finance loan is secured against the vehicle – your car may be repossessed.
3. Deposit amount
All our vehicles come with a £0 deposit option, which can be great if you don’t have any savings to use as a deposit or you want to keep hold of them for something else.
However, the less deposit you put down upfront, the more money you’re borrowing.
Therefore, the more money you can put down as a deposit, the more favourable you look to the lender – as you’re borrowing less, therefore, are less of a risk.
4. Mileage
As lease deals incorporate your predicted annual mileage to work out how much you’ll pay each month, it can have a big impact on your monthly payment.
But be honest and don’t underestimate your mileage, as when it comes to handing the car back at the end of your agreement, if you’ve exceeded your allotted mileage, you could face big penalty charges.
Further reading: Lease mileage options guide
What other costs do I need to consider?
When you’re leasing a car, you need to make sure it’s affordable, no matter your credit score.
And you also need to remember that it’s not just the monthly payment you need to consider. There’s also insurance, fuel, maintenance and road tax.
Most lease deals we provide come with road tax included, and you can add a maintenance package on some cars, so there’s one less thing to worry about.
But ensure you factor in fuel and insurance costs into your budget before going ahead, as if you can’t meet your car finance payments, the vehicle will be repossessed.
Further reading: How much does it cost to lease a car?
What other options do I have with bad credit?
If car leasing doesn’t appeal to you or your credit score won’t hold up with a lease, there are other options available.
1. Other car finance options
Leasing – also known as personal contract hire (PCH) – isn’t the only type of finance option available to you when looking for a car.
There’s also personal contract purchase (PCP) and hire purchase (HP).
PCP is quite like a lease in that you can have the car for a few years and then hand it back and walk away. However, unlike a PCH, you also have other options when your agreement ends.
You can choose to keep the car with a large final payment – a balloon payment – or part exchange the car for another one.
HP, meanwhile, is where you spread the entire cost of the vehicle over usually four or five years, and at the end, you own it outright.
Typically, HP is one of the most favourable finance types if you have bad credit and is available on both new and used vehicles.
2. Borrowing the money another way
If you have bad credit, there are specialist lenders available that aren’t tied to the motor trade that may help.
You’ll make the application in a similar way to a personal loan, where the money isn’t secured against one of your assets – like a car. However, because of that, they usually come with much higher interest rates.
If that’s no good, you could turn to family or a trusted friend to lend you the money – if that’s an option – or even look at a guarantor loan.
A guarantor loan is where you make the application with someone else – usually a member of your family or friend with a good credit score.
The acceptance criteria are usually lower than if you were applying alone, as your guarantor is in place to make any monthly payments you can’t.
But before you sign up, ensure that your guarantor is aware they will be solely responsible for covering any payments you can’t make. And if they can’t, it’ll damage both your credit scores.
3. Buying the car outright
If your credit score doesn’t allow you to get finance – be it you have bad credit or no credit at all – then, if it’s an option, buying a vehicle outright might be a solution.
You don’t get the same low payments or the chance to drive a vehicle you may not be able to afford otherwise – as you do with a lease – but you might still be able to get behind the wheel of something while you work on improving your credit score.
How do I know if I’ll be accepted for car finance?
It’s easy to find out if you’ll be accepted for car finance. And you can do it all online in minutes.
Some car finance brokers will carry out what’s called a hard search to see if they can find you a suitable lender. A hard search is a credit search that shows up on your credit file. And if you have several in a short space of time, it can damage your score.
However, here at Zero Deposit Car Leasing, we never use an initial hard search to find you a suitable lender.
Instead, we only use soft searches in the first instance to make sure there’s a lender to suit your needs before going ahead.
Because of that, finding out whether you’ll be accepted for car finance with us won’t affect your credit score.
It’s quick and simple, too. Just use our car leasing eligibility checker to fill out a few details and know whether you’ll be accepted for car finance in minutes.
