Everything you need to know about leasing with a bad credit score
Leasing could be an option if you can’t afford or don’t want to buy a car outright. But is it still possible if you have a poor credit score?
For many in the UK, the dream of driving a shiny new car can seem out of reach, especially when the funds to purchase one outright are not readily available. Enter car leasing, a viable alternative that operates much like a long-term rental, typically spanning 2 to 4 years, with set monthly payments. This option allows individuals to enjoy the perks of a new vehicle without the hefty immediate financial outlay, providing the pleasure of driving a new car with a more manageable financial commitment, making it an attractive proposition for those looking to manage their finances more effectively.
Credit scores and leasing
When it comes to leasing a car, your credit score takes centre stage. A good credit score is often a prerequisite for approval, as it reassures the leasing company of your ability to keep up with the payments. While being approved for a lease car isn’t often a concern for people with good credit scores, if you have a bad credit rating lease providers are unlikely to approve a deal in case you can’t keep up with the repayments.
Challenges with poor credit
The journey to leasing a car with a poor credit score is fraught with challenges. Leasing providers typically look for individuals with good to excellent credit ratings. But what exactly constitutes a bad credit score? It is difficult to put an exact number on a bad credit score. This is because the three main credit reference agencies – Experian, Equifax, and TransUnion – all use slightly different scoring systems. MoneySuperMarket’s free Credit Monitor service uses TransUnion credit scores. Lenders have their own criteria for what they consider a bad credit risk, and this lack of a universal standard can be confusing for consumers.
Further challenges with poor credit
Moreover, you should tread carefully because too many applications for credit over a short period can result in damaging your credit score further. Our guide gives more details on what is a bad credit score.
Considerations before leasing with bad credit
Before taking the plunge into car leasing with bad credit, it's important to weigh the necessity of having a car against the full spectrum of associated costs, including insurance, fuel, and maintenance. It's crucial to ensure that the lease payments, along with other expenses, are comfortably within your budget. To avoid any surprises, it's also wise to utilize free online tools to check your credit score and gauge if leasing is a viable option for you.
Credit checks for leasing
It's worth noting that the prospect of car leases without credit checks is highly unlikely, given the Financial Conduct Authority (FCA) regulations. Credit scores play a significant role in finance decisions and the interest rates offered, so understanding your credit standing is key. The FCA mandates credit checks to ensure responsible lending practices.
Improving credit score with timely Repayments
There's a silver lining for those who do manage to secure a lease with a less-than-perfect credit score. If you make your repayments on time and in full each month your credit score should improve over time - meaning you should be able to access better car leasing deals in the future. However, it's worth noting that missing or late payments can have the opposite effect, decreasing your credit rating and making future financial endeavours more challenging.
Alternatives to leasing with poor credit
For those who find themselves unable to lease due to poor credit, there are other avenues to explore, though they may not be as straightforward for individuals with credit challenges.
Car loan: You may be able to find a personal loan for bad credit that would allow you to buy a car outright. You would then pay back the cost of the loan – with interest added - in monthly instalments over a fixed term.
Hire purchase: This option involves monthly repayments that eventually lead to car ownership after the final payment. However, approval for hire purchase agreements can be difficult with bad credit due to potentially higher instalments.
Personal contract purchase (PCP): PCP is similar to leasing, with the added end-of-contract option to buy the car, return it, or start a new PCP. Like hire purchase, obtaining a PCP agreement with bad credit can be challenging.
Despite the hurdles that come with car leasing when you have a less-than-ideal credit score, it's not an impossible task. With a clear understanding of your financial situation and a responsible approach to credit and repayments, you can navigate the leasing landscape and potentially improve your credit score for better opportunities in the future. Remember, the road to better credit is paved with consistent, timely repayments, and each step you take can lead to more favourable opportunities in the future.