Can I lease a car with bad credit?

Date Posted 20th July 2021
Read Time 8 min read

Leasing is one of the easiest ways to access a brand new or Approved Used car with affordable monthly payments. But if you have a poor or lower than average credit rating, you may be wondering whether it’s an option for you.

Although it may seem like you need a strong credit rating to be accepted for lease deals, there are options for those with less-than-perfect credit histories. 

Read on to find out how to lease a car with bad credit.

What is a credit score and why does it matter?

When applying for any kind of finance, the lender or lease company will conduct a credit check. 

By doing this, they can find out about your credit history and what type of borrower you are, which gives them an idea of how likely you are to repay your loan.

Part of this check includes looking at your credit score. This is a number produced by credit reference agencies that reflects the patterns in your credit history and shows the lender the level of risk you pose as a borrower.

If you have a high credit score, this suggests you’re someone who has managed their finances well – made payments on time and has a low credit utilisation ratio. 

A lower score, meanwhile, will result from factors such as missed or late payments or defaults. 

Ironically, also never using credit in the past can give you a poor credit rating. This is because there’s not enough credit history available for a credit reference agency to look at to give you a score. 

Without something for the lender to gauge what kind of borrower you are, it’s hard for them to make a judgement. This is often the case for younger people who haven’t had the chance to build up an adequate history of borrowing and repayments.  

Generally speaking, your credit score acts as a predictor for your future financial behaviour.  

So if your score is low, a lender may be concerned that you won’t meet your payments and be less likely to accept your application. 

And although it’s not the only factor they take into account, it’s an important one.

What can I do to improve my chances of acceptance?

While you can lease a car with bad credit, it’s harder. But there are many things you can do to improve your chances of being accepted. 

Check your credit rating

Until you see what others see when looking at your credit history, you won’t know how to improve things. 

Look at your credit reports from the three main credit reference agencies – TransUnion, Equifax and Experian – and make a note of any negative flags that could be bringing your score down.

This will include: 

Being registered on the electoral roll

This forms part of your report as it’s an accurate way for lenders to confirm your identity. By registering, your score will increase, as it shows stability in your living circumstances.

Missing or late payments

These can really have a negative impact on your credit score, as a missing or late payment will stay on your report for six years. 

If it’s a one-off or the missing or late payment was many years ago, it’ll have less of an impact. If there’s a series of them, though, it can be damaging.

To counteract the effects of missing or late payments, make sure all your accounts are on track. 

If you’re behind on payments, bring them up to date and make sure you pay on time going forward, and, if possible, more than the minimum amount.

Credit utilisation

Credit utilisation is the percentage of credit you use in ratio to the amount you have access to. 

So if you have a credit card with a limit of £2,000 and you have used £1,000, your credit utilisation is 50%. 

Ideally, you want a low credit utilisation rate – somewhere around the 20% or 30% mark. This shows that you’re managing your finances adequately and aren’t too reliant on credit. 

Financial links

If you have any joint or credit accounts with someone who has a poor credit rating, that’ll bring your score down, too. 

Multiple credit applications

When you apply for credit or open a new credit facility, your credit score can drop. 

If you’re shopping around and making multiple applications to find a lender willing to offer you credit, this will be negatively marked on your credit history as it comes across as if you’re desperate for credit and therefore not good at managing your finances.

Save for a bigger initial payment

At the start of a lease deal, you may be asked to put down an initial rental payment – a bit like a deposit with car finance. The amount varies but can be anything from nothing up to the equivalent of 12 monthly payments.

If you’re trying to pay down debt to help your credit score, finding the spare cash to make a bigger initial payment can seem hard. But any extra you can afford to throw down to begin with can help you with getting approved for a lease deal. 

A larger initial payment will show the lease company that you’re serious and will also reduce your monthly payments, making it more affordable and therefore less of a risk to them. 

Look at a lower value car

Leasing is a great way to get your hands on a new car. But if your credit history is preventing you from doing so, looking to lease a car with a lower value could help your chances.

Remember, a lease agreement will also help you raise your credit score if you continue to make payments on time and in full. So by taking a lower value car on a lease now, you could improve your score and then look at leasing a higher spec car in the future. 

Be realistic about affordability

Lenders do look at your credit score, but equally important is the question of affordability. Making sure you’re choosing a deal that’s within your financial reach will give you a better chance of being accepted.

To work out how much you can comfortably afford on a monthly basis, take your income and subtract all your necessary outgoings – rent, mortgage, bills, food and existing credit repayments. 

What you’re left with is your disposable income, which will give you an idea of how much you can afford to pay out monthly for a car. Don’t forget to factor in insurance and fuel costs too, though.

Consider a joint application or guarantor for the lease

If your credit rating is really holding you back from being accepted, a guarantor for the lease could help. 

Usually a family member or close friend, a guarantor is someone who says they’ll make the payments in the event you can’t.

Likewise, you could consider a joint application with someone who has a better credit rating to increase your chances of approval.

Look at other forms of finance

It helps, when you have a poor credit rating, to look at all your options. If you feel you could struggle getting accepted for a lease, you may find it easier to be accepted for another form of finance, such as personal contract purchase (PCP). 

PCP works very similarly to a lease deal – there’s usually an initial payment – although not always – followed by a series of monthly payments. 

However, it’s also available on used cars too, and still has lower monthly payments compared to some other types of finance, such as hire purchase. 

Much like a lease, you can choose to hand the car back at the end of the agreement with no further obligation. 

But with PCP finance, you also have the option of purchasing the car at the end of the agreement with a final balloon payment or part exchanging it for another to capitalise on any equity in the car. 

What if I have other financial difficulties?

Certain financial circumstances, such as bankruptcies or IVAs, can linger on your credit report for many years, in some cases up to 10 years.

This can make it difficult to lease a car, as it weakens your credit score and will make your interest rate higher.

However, although it’s harder to find a lease deal after bankruptcy, it’s still not impossible and there are lease deals for those who have had financial difficulties in the past.

Here at Hippo, we specialise in helping everyone – regardless of their financial circumstances. It’s also easy to see if you’ll be approved and it won’t affect your credit score. 

Simply click Apply Now below, fill out our short form, and we’ll let you know within minutes whether you’ve been approved. 

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