Leasing with poor credit

Author : Neil Thomason

Both private individuals and business users can increasingly find themselves in the position where a poor credit score means they may not meet the strict underwriting criteria of the major leasing companies.

In this guide we will explore the conditions which leasing and finance companies usually require the customer to meet before they can offer the rates commonly advertised by contract hire and leasing brokers, main dealers and finance companies.

Terms and conditions of finance acceptance can vary for personal customers and business users.

Leasing with poor credit

For personal car leasing the criteria could include:

  • Five years or more address history (proved through utility bills etc.)
  • Three years or more employment history
  • Applicant should be registered to vote at address given
  • No adverse credit history i.e. missed or late payments, CCJs or bankruptcy
  • Proof of ID is usually requested. A copy of the applicant’s passport or full UK driving licence will be required
  • Three months wage slips or bank statements can be requested. This is in order to prove the ability to pay and the income levels of applicant

For businesses car leasing (Ltd companies, sole traders, LLPs and PLCs) the criteria could include:

  • Trading history of at least three years with accounts at Companies House
  • Business bank statements can be requested to display ability to pay
  • Company registration number
  • Management accounts may occasionally be used in lieu of certified accounts. This is dependant on the circumstances of applicant
  • Director's address and employment history may be requested

A standard credit check is also run for both personal and business users, usually through Experian or Equifax.

Why credit is so important in vehicle finance?

Research is the key to finding a good deal on a new car or van, but that means knowing as much about your personal circumstances as the vehicle you wish to drive.

Your credit rating directly influences the level of interest you will be asked to pay on any credit agreement. Leasing companies will also generally ask for higher interest rates if you have a poor credit history. Alternatively, a leasing company could ask for larger down payments or a security deposit to reduce the risk level from its perspective.

Therefore, if you have poor credit, vehicle finance can be difficult to obtain. Furthermore, every application you make that is unsuccessful will further harm your credit rating. Consequently it is absolutely crucial to know your credit rating before you approach a lender or leasing company. Then if you have bad credit, you have time to turn it around before applying for finance.

Improving your credit rating

To improve your chances of a successful car finance application, you can attempt to improve your bad credit rating ahead of time. However, this cannot be done in a matter of days or weeks – you should make a concerted effort to enhance your credit over at least a six-month period. Almost every single adult in the UK will have a credit file, and specialist agencies keep a record of your bills, debts and repayments to make a recommendation to your creditworthiness.

Here is a quick guide to the steps you can take to improve your credit rating:

  • Acquire a copy of your credit report – This can be done through credit reference agencies such as Equifax, Callcredit and Experian. Look for any inaccuracies on the credit report – it may be that there are some mistakes which can be altered in your favour.
  • Keep your current accounts up to date – Close any old accounts that you don’t use and ensure you are not slipping into an overdraft.
  • Take out a credit card – Taking out a credit card and paying off the balance in full each month is a quick and easy way of enhancing your credit rating. Make sure you can stay on top of any charges however, because if you can’t afford to pay the debts you will exacerbate the problem. Look for cards with 0% introductory rates on purchases and balance transfers.
  • Pay all your bills on time – Make sure the bills are in your name and make all of your payments on time. Use Direct Debit where possible, to ensure you don’t miss a payment date.
  • Get on the Electoral Roll – make sure you are on the roll and that there are no mistakes regarding your name and address.
  • Do not take out more than one loan at a time – Show that your payments are manageable. If you have several loans out at once you are deemed more likely to default on a payment.
  • Reduce the number of applications – Remember each rejection can damage your credit rating. So if you know you will not receive the market-leading loan due to your bad credit, don’t bother applying for it.

What if you don't have any credit?

Many young adults who live with their parents face the difficulty of having no credit at all – good or bad. In this instance it’s important to know what lenders look for as you attempt to establish credit:

  • Monthly income – This must be at a level where you can comfortably afford to pay your vehicle payments on top of additional bills.
  • Consistent address – It helps to have the same registered address for six months. This gives the indication that you are not likely to skip town!
  • Consistent employment – Show that you are settled into a job and that you have a reliable wage. Generally you should be employed by the same company for at least six months.
  • No black marks – Show that you can pay bills on time for a consistent period, ideally a year or more.
  • Co-sign – If you have no credit history, it is often a good idea to have a co-signer on a loan to lower your payments, such as a parent or someone you know who has a good credit history. This will help you build your credit rating but will place added pressure on you to pay your bills on time as any defaults will reflect on both you and the co-signer.

Can you lease with bad credit?

As FCA-regulated companies and signatories to the site Code of Conduct, our advertisers have to perform a credit check before completing a lease agreement. This is necessary to protect both you and the leasing company.

We can’t comment on individual cases, but those with poor credit may find it harder to be accepted. If you are unsure, the best course of action would be to find a deal you like, contact the advertiser and explain the situation.

With some major leasing companies running at a current finance rejection rate of up to 40%, it is easy to see why companies that provide so-called ‘non-status’ car leasing products are seeing a greater share of the market place year on year. Non-status simply means that each case is dealt with by a specialist on a case-by-case basis and not just run through a computer program.

It is not just customers with adverse credit history who can benefit from the increasing number of providers of non status car leasing however.

New start companies are often overlooked for finance by the major leasing companies due to their lack of trading history. However it could be argued that those starting their own businesses are among the consumers most in need of a reliable and smart looking car. It is vital to keep appointments and give a good impression as a new business and a relatively new car can certainly help with this!

Individuals who have recently gone through a marital divorce can often find themselves turned down for finance due to the increase in risk which can follow the financial turmoil this circumstance often results in. Upon a divorce however one car couples then become two, one car individuals and a significant need is created which non status car leasing can satisfy.

Those consumers who have recently been out of work or who have moved to this country to begin employment make up a significant percentage of non status car leasing customers. Even those who have moved here to take up the most senior positions in business are often rejected due to their lack of address and employment history - many leasing companies refuse to take into account history gained abroad.

How does bad credit car leasing work?

Non status or adverse credit car leasing companies are able to offer their product due to the fact they off-set the perceived increased risk of missed payments and failure to pay by making the rentals slightly higher and increasing the profit margins for each deal. As with any finance company they work out the relative risks associated with individuals and businesses and offer and refuse finance accordingly.

Often the provider will actually own the car which they lease out, therefore if a deal does go wrong it is simply a case of the leasing company collecting the vehicle and then letting it out to the next customer. It is very rare for non status car leasing providers to offer brand new vehicles, it is mostly nearly new or used vehicles they will offer for this very reason.