Can I lease a car with bad credit?

Your credit score is an essential part when getting a loan, credit card, mortgage and when you're leasing a car.
If you’re new to the world of credit checks and finance, or you just want to learn more about how credit score impacts leasing a car, then keep reading because we’re here to help. We’ve broken down what credit score is and how it may impact your lease application. We’ve also provided tips on how to improve your credit score.

A credit check, simply put, checks your ability to pay the regular monthly payments on time, for the full term of the agreement. There are credit reference agencies that businesses can use to run a credit check. These agencies look at your past payment behaviours such as whether you've been paying your bills on time or not. They may look at your utility bills, credit card bills, and mobile phone payments and check whether they've been fully paid or not. They may even consider other factors such as your employment history and income.
Once the credit reference agency has run a check, they'll provide the funder with a credit report which they use to determine whether to approve your application or not. A high credit score increases your chance of getting approved for a car lease deal as you’re considered reliable and a low risk to the business as you're less likely to default on your payments.

You can find out what your credit score is by getting a credit report from a credit reference agency such as Experian, Equifax, and ClearScore.
A credit report estimates your credit score by performing a 'soft credit check' and checking your credit history, how much money you owe, and whether you’ve been making payments on time or not. A soft credit check only provides an estimate of your credit score as it doesn't conduct a full credit history check. These checks are not visible to anyone else so it prevents your credit score from being negatively affected. A hard credit check, on the other hand, is visible to other companies. Conducting too many hard checks in a short span of time may lower your credit score.

A credit check assures the funder that you’ll be able to pay the money you’d owe if you leased a car with them.
When you lease a car, after paying the initial deposit, you're liable to make the monthly payments until the end of the leasing contract. To ensure that you'll be able to make these monthly payments in full and on time, the funder runs a credit check to find out more about your financial health. A credit check helps the funder determine whether you’ll be able to make the monthly payments for the vehicle or not.

All funders are required to check your creditworthiness before you lease a car as per the Financial Conduct Authority (FCA) requirement. The funder runs a credit check to minimise risks to their company and find out more about your creditworthiness i.e. how likely you are to pay the money you owe to the funder when you lease a car from them.

If you have a low credit score and you want to lease a car, there are a few steps you can take to improve your chances of being eligible for the lease deal.
Credit decisions are made by funders on two main factors: Eligibility & Affordability.

Eligibility

Your eligibility for the lease deal is based on your past payment history, and traceability on the searches conducted by the credit reference agencies. This usually isn’t influenced by the vehicle you want to lease or the rental cost of the vehicle. There are ways you can work on and improve your eligibility for a lease deal but it all comes down to what suits your current situation. Basic things like having consistent and correct personal details such as your name, number and address with your bank and being registered to vote can help improve your eligibility. Paying bills on time and re-paying loans and debts can help move you in the right direction. Managing your credit card if you have one or getting a credit builder card can also help improve your eligibility for a lease deal. Find more tips on how to improve your eligibility for a credit decision.

Affordability

Affordability means what the funder anticipates you can afford to pay each month. Affordability considers your disposable income and is calculated based on your provable income versus your spendings and outgoings, amongst other factors. Lower rental costs generally improve your chance of passing an affordability assessment However, if your disposable income is lower than the cost of the monthly repayments, then your chances of meeting the requirements of the affordability assessment will be negatively impacted. Few things to consider that can influence the monthly cost of the car are the initial deposit on the lease deal, the spec of the car, the car’s colour, your mileage allowance and whether you opt for any optional or not. Please note, if you plan to pay a higher initial rental up front to lower your regular monthly rentals, you will often be asked to show proof of the funds for this initial amount.

Will leasing a car affect my credit score?

If you make all your payments on time, the car lease contract will either help maintain your credit score or it’ll make a positive impact on your credit score.
On the other hand, if you don’t make your payments on time, you can end up hurting your credit score. If you think you’ll struggle to make the monthly payment on your leasing contract, you should contact the funder as soon as possible to find out what your options are before you start defaulting on the payments. There may be ways you could get out of the lease deal early to avoid missing payments and hurting your credit score. You can also get free, confidential advice from the Citizens Advice Bureau or the Money Helper if you’re struggling to keep up with payments.

Now that you know how your credit score affects your chances of getting approved for a car lease, start browsing on Auto Trader for lease deals.
Leasing gives you the flexibility to drive the car you’d like, without owning the car. Simply, choose the latest car you’d like to drive, how much you want to pay upfront, how long you’d like to drive it for (usually between 2 and 5 years) and how many miles you’ll do in that time. At the end of your contract, you simply hand the car back and you can upgrade to the latest model. Learn more about how much car leasing will cost you, so you know exactly how much is going to go out of your bank each month.