Leasing Vehicles with Bad Credit
By DonnaIf you have experienced problems with your credit history in the past, you may be wondering if you are eligible for car leasing with bad credit.
Like a loan or a credit card, vehicle finance is a form of credit and as such, finance companies will investigate your credit history before deciding on whether to accept your application.
If you’re unsure if your eligible to lease a car due to your credit history, we've put together a short guide about car leasing with bad credit including, what credit score you need to lease a car, what to do if you’ve failed finance and what your options are when applying for a joint application or using a guarantor.
What credit score do I need to lease a car?
When you submit a finance application to a lender, they will approach at least one of the three UK credit reference agencies – Equifax, Experian or TransUnion (formerly Callcredit) – to assess your credit file.
Each credit reference agency has a different scoring model which makes it difficult to compare them directly but they all provide a visual scale (usually five bands ranging from “very poor” to “excellent”) to give you an idea of your current credit score.
“Most funders require an applicant to have a good to excellent credit score to be approved for car leasing. According to Experian's credit score system, this is the equivalent of a credit score of 881 or more.”
That's because, generally, most funders ask for a “good” to “excellent” credit score in order to be accepted for vehicle finance, although it is worth pointing out that no lender uses your credit score alone to approve or decline you for finance. As we mentioned before, other factors also come into play such as your ability to make regular payments on time and any other debts you may have.
If you are unsure if you are eligible for vehicle finance, you can use our free and interactive Am I Eligible for Personal Vehicle Finance tool. Experian also have a handy guide on Understanding Credit Scores which may be of interest to you.
When you apply for vehicle finance, lenders not only look at your credit score, but also your credit history to identify any kind of financial behaviour which may be seen as a red flag.
Possible financial red flags include:
Opening a new credit account can sometimes have an impact on your credit score. While opening a new bank account should only lower your credit score temporarily, if you do it too often, your credit will not have time to recover.
If you max out your credit card or use your entire overdraft, lenders may think you’re in financial difficulty which can have an impact on your credit score. Outstanding debts, multiple loans and a patchy repayment history are all considered here.
Every time you apply for credit, you leave behind a footprint, and this can negatively impact your score, even if you’re not approved. This is because each application records a hard search on your report and if you have lots of searches over a short timeframe it may appear as though you’re desperate for credit or struggling with bill payments.
If you borrow more than you can afford and can’t pay off your debts, lenders may try to reclaim money you owe by getting a County Court Judgment issued against you, or by applying to make you bankrupt. Events like bankruptcies, insolvencies and County Court Judgements (CCJs) all leave marks on your record and will harm your score, making car leasing with bad credit even harder.
If you miss regular payments to lenders they may record a default on your report. Overdue payments can suggest you’re struggling to manage your finances and can lower your credit score for up to six years. Even if late payments only reduce your score a little, it could take you beneath the lender's cut-off point for approvals.
While leasing vehicles with bad credit can pose issues, not being able to afford various parts of the lease, such as up-front costs, can also be a major blocker to undertaking a lease on a new or used car.
We offer no deposit car leasing – allowing you to get behind the wheel of a brand-new car without worrying about a big up front payment. It’s the same as a traditional car lease, but has a smaller initial rental cost.
While this may not help you find lease cars for poor credit scores, it is an option if you are worried about finding the money for the deposit on a lease car.
If you’re wondering “can I lease a car with bad credit history?” but need a few more answers first, we’ve prepared the answers to several frequently asked questions about leasing vehicles with bad credit.
Many young drivers may find it difficult to be accepted for vehicle finance if they have little to no credit history. This is because lenders tend to prefer lending to established borrowers who they can better assess the risk for paying back debt.
To lease a vehicle through Nationwide Vehicle Contracts you must:
- Be over 18 years old
- Have a full UK driving licence (a provisional licence will not be accepted)
- Be able to afford the monthly rentals
- Be a UK resident
- Hold a UK bank account
- Have a regular monthly income
The good news is that if you can prove you have the funds and ability to make regular payments on time, you will increase your chances of being accepted by the finance provider.
We have put together a handy guide specifically for young drivers, including everything you need to know about age restrictions, passing the credit check and the types of the contracts available.
If you have entered into an Individual Voluntary Arrangement (IVA), have been declared bankrupt, or have a County Court Judgement (CCJ) on your record, its unlikely you’ll be accepted for vehicle finance. This is because events like these leave a mark on your record and can remain on your credit file for six years.
The good news is that, unlike a criminal record, a bad credit report will not follow you around for life. Enquiries only stay on your report for up to two years, and on public records for up to six years. If you make efforts to improve your credit score, you will improve your chances of being accepted for vehicle finance in the future.
If the finance provider has declined your application for vehicle finance, we will be in touch to talk you through your options.
We will also email you the details of the credit reference agency used as part of your search. It is worth noting at this point that while the creditor must provide the details of the credit reference agency used in considering your application, they are not legally obliged to explain why you failed.
If you feel that the information held about you at the credit reference agency is incorrect or if you if you feel you've been turned down for credit unfairly, you can appeal the decision. To do this, you must obtain a copy of your personal credit file (you can do this for free from Experian or MoneySavingExpert’s Credit Club).
You will also need to supply further information to support your application, such as copies of bank statements. Your sales consultant will be able to discuss this further with you at enquiry stage.
Finally, it’s also worth taking steps to improve your credit rating before trying to borrow from another lender. The Citizens Advice Bureau offers a wealth of information about borrowing money and what you can do if you have been refused credit.
No, if the finance provider has declined your application and we are no longer able to assist you with your lease application, your order will be cancelled and we will return your processing fee in full within 28 working days.
If you have been declined vehicle finance due to bad credit, other funding options may be available to you depending on your circumstances. Depending on the finance provider, you may be able to apply for joint application with a spouse or a family member.
“A joint application is when two people apply for car finance together, using both of their personal details in support of their application.”
In this scenario, both applicant’s incomes are combined and both parties are responsible for the monthly payments.
You can only take out a joint application for car finance with someone who is living at the same address as you (such as a partner or parent) and approval is dependent on the credit scores and incomes of both applicants. It’s also worth noting that if you and your partner spilt up before the end of the contract agreement, the payments must still be made otherwise the credit scores of both parties can be negatively affected.
Not all finance providers accept joint applications so it’s worth checking with your sales consultant before considering this option. To discuss whether you are eligible for a joint application, call us on 0345 811 9595.
Another finance alternative which may be available to you is to use a guarantor as part of your application. A guarantor is a third party who is responsible for the car finance payments if the main applicant defaults. In most cases, a guarantor will need to be a family member (such as a parent, aunt or uncle) and they will need to have a strong personal credit file. Most guarantors need to be homeowners and can't be financially linked to the borrower – such as a spouse.
As a rule, most finance providers will not accept a guarantor when applying for vehicle finance, but this is dependent on the funder and is dealt with on a case-by-case basis. It’s also worth noting that if the monthly rentals are not received in a timely manner, the credit score of both parties (the applicant and the guarantor) can be affected.
To discuss whether you are eligible to use a guarantor as part of your application, call us on 0345 811 9595.
Finally, if you are a new driver with little to no credit history, it may seem desirable for a third party to take out a lease agreement on your behalf. This is also known as accommodation finance.
“Accommodation finance is where the person applying for car finance is not the main driver of the vehicle and is taking out the agreement on behalf of someone else.”
A good example of accommodation finance is a parent taking out a lease agreement on behalf of their son or daughter. While accommodation finance is not actually illegal, it is forbidden by the finance provider. This is because there is a greater risk of the finance company not being able to get the car or their money back in the event of a contract breach.
It is also worth pointing out that while accommodation finance itself is not illegal, not declaring that the person taking out the lease is not the main driver is illegal and both parties involved (the person applying for the finance and the person that they are taking out the lease for) could be charged with fraud.
You can read more about accommodation finance in our Taking a Finance Agreement for Someone Else guide.
Still unsure if you’re eligible for vehicle finance? Find out more about How Leasing Works in our handy guides section or call us on 0345 811 9595 to speak to one of our experienced advisors.
We offer a range of leasing deals to suit your every need. We also offer in stock lease deals for those who want to get on the road as soon as possible.
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