Do you need a credit check to lease a car and how does it work?
The prospect of a credit check can appear daunting. They’re talked about in adverts, mentioned frequently by people in the financial industry and have a somewhat mixed reputation.
However, in reality, they’re actually a very helpful tool. They can help you understand your finances and provide real benefit.
What is a credit check?
A credit check is a check companies use to get an insight into your financial activity.
By conducting a credit check, a prospective lender can access your credit report, where they’ll see your credit score as well as other pieces of information, such as your address history, if you have any other lines of credit open, your repayment history and any financial ties.
Companies that may want to conduct a credit check include:
- Lenders (including car finance companies)
- Utility providers (gas, electric, etc.)
- Mobile phone network providers
- Letting agencies
Why do you need one for a lease?
A car lease is a secured loan. Although you never own the vehicle, your monthly payments still cover your stewardship. If you miss a monthly payment, there’s a risk of the vehicle being taken back.
And in order to assess the risk of you as a borrower, a lender will look at your previous financial dealings to decide whether to approve your lease (or any other kind of car finance) application or not.
By completing a credit check and gaining access to your credit report, they can get a good idea of whether you’re creditworthy.
If you’ve shown in the past that you can manage your finances well and never miss monthly payments, you’ll likely be accepted with a favourable interest rate.
If, however, you’ve missed payments in the past or have something else damaging on your credit report, the lender may apply a higher rate of interest on your loan to cover the risk, or decline your application.
What are hard and soft credit checks?
There are two different types of credit check – a hard check and a soft check.
They both show the same information, however, a hard check will appear on your credit report for other lenders to see. A soft check meanwhile won’t.
If you have too many applications within a short space of time – usually three in a six-month period – it can have a negative impact on your credit score – as you look as though you’re desperate for a loan.
That’s why it’s important that whenever you complete any initial finance application, it’s always a soft check.
Here at Zero Deposit Car Leasing, all our initial credit checks are soft, meaning you can find out if you’ll be approved without it appearing on your credit report and potentially harming your credit score.
How long does it take?
How long a credit check takes often depends on both the broker and lender’s efficiency. For some, it can be instant or the same day. For others, it may be 24 hours or longer.
Our Apply Now eligibility checker – which doesn’t harm your credit score – takes a few minutes to complete and will let you know via email within the hour if you’ve been accepted.
What do lenders look for?
When carrying out a credit check, lenders look for certain things which will help them decide whether to approve your application, including:
- Your credit score
- Your payment history
- Your address history
- Current financial agreements
- Previous credit checks
- Personal information
Your credit score
Some think that a credit score is the only thing that matters when applying for credit. However, that’s not the case.
Your credit score is there to give lenders (and you) an easy-to-understand top-level summary of your credit history. It’s not the only defining aspect.
Of course, a higher score is always better. But just because you have a high score doesn’t mean you’ll always be approved.
And if you have a less-than-perfect score, it also doesn’t mean you’ll automatically be declined.
Your payment history
Another big thing lenders look at is how well you’ve managed credit in the past.
If you’re always on time with your payments, they’ll look at your application more favourably, as you’ll be deemed less of a risk.
If you’ve missed payments in the last six years, however, they’ll be visible to lenders. And it can a deciding factor as to whether you get approved or not.
Your address history
It may seem unimportant, but lenders also look at your address history when you apply for credit.
Lenders prefer consistency and security, so if you’ve been at the same address for a prolonged period, it’ll look better than if you change property regularly.
That’s because if you frequently change address, your circumstances may be considered unsettled, making you a greater risk as a borrower.
Current financial agreements
As well as your financial past, lenders will also look at how much you borrow currently. That could be from mortgage, loans and credit cards to car finance, mobile phone contracts and utilities.
This is so they can get an idea of how much debt you’re already in, and they’ll use that information to estimate whether you can take on more safely.
Previous credit checks
As we’ve already mentioned, previous hard credit checks show on your report. And if you have a lot of them, it can give off the appearance of financial desperation.
So, when checking to see if you’d be a suitable borrower, lenders will look at how many applications you’ve made in the past before making their decision.
Another aspect lenders look at when they carry out a credit check is your personal information.
That includes your name, any financial ties such as a spouse or cohabitee – as their credit history impacts yours – your employment history and date of birth.
Why do lenders do credit checks?
Lenders carry out credit checks to ensure the applicant is creditworthy and to determine how much risk is involved when lending to that person.
Without a credit check, lenders wouldn’t be able to offer the low rates of finance they do, or get a greater insight into a person’s credit history.
So, although credit checks can seem daunting and are often viewed negatively, they can also shed light on an applicant’s credit profile, as well as give context to anything that may harm or affect your credit score.
Are there any companies that don’t do credit checks?
Yes, there are companies available that provide loans without carrying out a credit check. However, they often come with monstrous rates of interest.
By choosing a lender that doesn’t carry out a credit check, you may end up repaying double or even treble the amount initially borrowed. And if you use that in car terms, that’s a lot of money.
But, it’s not always easy to find out whether you’ll be approved for finance. And we understand credit checks can be worrying.
That’s why, with our free and easy eligibility checker, you can find out in minutes whether you’ll be approved without affecting your credit score.
So, what are you waiting for? Apply Now.