A common question we get asked at Hippo is: do you need a credit check to lease a car? The simple answer is yes. When you’ve decided that you want to lease a car, whether for business or personal use, you’ll be required to complete a credit check before being approved for finance.
The words “credit check” can often deter people. After all, it’s a quick snoop around your private finances, right? A credit check is, however, an important requirement of the Financial Conduct Authority (FCA) regulations.
Though credit checks can seem like a daunting process, they’re an essential part of the leasing journey. We’ve put together an informative guide that covers everything you need to know about credit checks and how they work when you want to lease a vehicle.
Why do I need a credit check to lease a car?
Once you’ve made your mind up about leasing a car, the next steps will involve a credit check or credit search. This is when a creditor accesses your financial information via your credit report. Creditors will likely let you know before performing a credit check, however they are not legally required to.
If a creditor has a valid reason to check your credit report, they can go right ahead. This includes the act of submitting a leasing application; they have the right to carry out a credit check without your consent. This is the best way for a finance provider to check that you’ll be able to keep up with your monthly payments.
The chances are that you’ve already done the maths. You’ll know exactly how much you can afford to pay monthly for a car. You may even have some emergency funds at your disposal. However, neither of these realities exempts you from a credit check.
Leasing brokers, like Hippo, will use your credit score to estimate the cost to lease a car. With your credit information, they’ll accurately price up payment terms, deposit commitment, and your overall monthly price to lease a car.
When your lease application is processed, the company will perform either a soft or hard credit search. Both are used differently and have varied impact.
What is a soft credit check?
If you are curious to learn more about where you rank on the credit rating scale, a soft search would be a good place to start. When a company performs a soft credit check, only selected information is shown and analysed at this initial stage. Rather than a full credit history. A good example of when a soft credit check is used, is when a creditor wants to verify your identity for an identity check.
Another way in which soft credit checks are different is that they remain invisible to other companies. Because they aren’t logged onto your credit history, they don’t impact your credit score. The advantage of this is that you can use a soft credit check to gauge your initial eligibility for credit before you submit your application. Furthermore, because these checks aren’t recorded, you can perform an unlimited number of searches and as frequently as you like.
At Hippo Leasing, we want to ensure that everyone has a fair chance of getting the car of their dreams. To help with this, we have created our Apply Now credit approval check. The best thing about this? We consider all credit backgrounds. Additionally, this is just a soft search so it won’t affect your credit score. But it will tell you if you’re likely to be accepted for car finance or not. It only takes a few minutes to fill in the Apply Now, get started below:
What is a hard credit check?
This is when things get real. A hard credit check is when a company examines your full credit history. This type of check is performed whenever you apply for a mortgage, a loan, a credit card, a phone contract, and, of course, a car lease. The hard credit check will determine if you can afford to make payments.
This also means that a hard credit check will be logged onto your credit history and be visible to other companies. Therefore, it affects your credit score. Too many hard credit checks in a short space of time can suggest that the applicant is struggling with financial instability. It implies that you may be dependent on credit.
Hard credit checks will stay on your credit report for up to a year – or longer. For example, debt collection checks can remain visible for up to six years. You can avoid multiple and frequent hard credit checks by only submitting applications for finance when you’re certain that you’re eligible. Use a soft credit check to view your eligibility.
In the long-run, it’s beneficial to leave time between your applications. One application every three months is recommended.
What will a credit report reveal to funders?
Your credit report shows lenders a number of things that are used to determine whether or not you can afford a lease. This includes:
- Your name and date of birth
- Electoral roll information – are you registered to vote?
- Your previous addresses
- Public records – showing if you have any court judgements, IVAs or previous bankruptcies
- Credit accounts – this will show when were they opened and any closed within the past six years
- If you’ve made previous payments on time
- Information on credit limits and loan amounts on any mortgages
- Any other credit cards and loans
- Details of your current account overdraft
- Details about other application searches
- To check if your home has been repossessed
- Your financial connections to other people and any joint credit you may have.
- Information about whether you have missed or made late payments, as well as the number of times this has happened.
- Whether your identity has been used for fraud
- Any previous searches made for similar applications filed in the last 12 months.
Using this information, the creditor builds an understanding of your borrowing history. They form a decision on whether you’ll meet the payments agreed for your lease. There are many reasons why your application for finance was declined. Read our article 6 reasons why your car finance was refused and what to do next for more information.
What are lenders looking for on my credit report?
It’s quite simple; lenders want to see if you have missed payments on other credit that you have. They’ll also check for a history of debt as well as how many different credit accounts you hold. Most companies will have their own credit scoring systems. Your credit rating is used against this to decide your eligibility for finance. This is why you could end up getting different answers from different lenders.
Where should my credit score rank if I want to lease a car?
Where should my credit score rank if I want to lease a car?
Leasing companies generally look for a credit score of 700 or over on the FICO scale. Lenders use the FICO Score to help make accurate, reliable, and fast credit risk decisions across the customer lifecycle. FICO uses a rating between 300 and 850 – the chart above shows the different credit score classifications. Having a credit score below 700 on the FICO scale, means that you may struggle to get finance. However, it doesn’t make it impossible. Read our article on how to lease a car with poor or bad credit. Additionally, Hippo offers affordable leasing for customers with bad credit. You can view our deals by clicking the button below.
Where can I check my credit score?
There are a number of online credit rating services where you can input your details and check your credit rating. Some notable sites include: Experian, Equifax and TransUnion. You’re most likely going to have to pay for the service, but most will offer an initial free trial service. Be sure to cancel your subscription if you only wish to use the service once.
Can I lease a car without a credit check?
You might have seen adverts saying “no credit car leasing options” and so on. These are somewhat misleading. The BVRLA (British Vehicle Rental and Leasing Association) states on their website: All legitimate BVRLA leasing broker members adhere to FCA (Financial Conduct Authority) rules and will carry out credit and affordability checks. Those who don’t will not be legitimate traders and could be out to scam you.So, in all instances, it’s best to lease from a BVRLA-approved company or wait a little to build up your credit score. That’s not to say that you can’t get a lease deal. At Hippo, we also cater specifically to people with poor credit history.
How long does a credit check take?
Most lenders will perform an instant credit check once you’ve submitted your application. They will get an automatic decision based on the result of this check. In most cases, however, it’s the job of an underwriter to manually review your credit check. Their judgement will determine the final decision. Therefore, the process can take a little longer. It all depends on what time of day you submit the application and the underwriters workload.
Expect a 24 to 48-hour turnaround time for a decision. During busy periods, or when there’s a weekend or bank holiday, you could wait up to five working days. This varies from lender to lender and applicants should contact the company if they’ve not had a response within the time scale promised.
What if I am refused car finance?
If you’re declined car finance, it can be frustrating to figure out why. Especially if you know you have the funds and are able to make the monthly payments. Rather than reapplying, it’s good to take some time to try and understand what could have made a negative impact on your approval result. Reasons that you may be declined car finance include:
- Poor credit rating
- Limited or non-existent credit history
- Employment history
- Not appearing on the electoral register as a voter
- Mistakes on your application
- Lender specific requirements
- Too much existing debt
- Too many recent credit applications
- Evidence of payday loans
- Prior bankruptcy
- County Court Judgements (CCJs)
- Identity theft or fraud
Though many people tend not to do this, it is within your right to ask a lender why they declined you for finance. They might not be able to go into detail but they can give you the name of the service they used for your credit check, and you can obtain your report from there.
Once you have the report, check it for discrepancies and human errors. You can address these with supporting evidence. If you believe you have been a subject of suspicious activity and/or identity theft/fraud, inform your bank immediately. Also contact CIFAS, the UK’s Fraud Prevention Service.
Only consider making another application once the original issue has been addressed and resolved. Try to be certain that another application won’t affect your credit rating. If you know that you may be refused finance due to a poor credit score, read our article How to prepare your finances for a car finance loan, and invest some time in improving your credit score.