Do you need good credit to lease a car?
Many of us dream of getting a shiny new car, but being able to buy a vehicle outright is something very few people can afford. This is where car leasing could be an option. These arrangements are basically long-term rental agreements and they can make it much easier to get behind the wheel of the car you want to drive.
However, if you have a poor credit history, you might not find it so easy to take advantage of these deals. Keep reading to find out more about how your credit score can impact on car leasing.
What credit score do you need to lease a car?
When you make an application to a lender for car finance, the company will want reassurance that you are able to make the agreed payments. For this, they may turn to a UK credit reference agency to take a look at your credit file.
Credit reference agencies have a record of your financial history. If you’ve had financial issues in the past - for example you’ve made late payments or defaults on loans or credit cards, or have been declined for finance by other lenders, declared bankrupt, entered into an Individual Voluntary Arrangement or had a County Court Judgement - it’s likely that your credit rating will have been negatively impacted
When applying for any type of finance, you really want to aim to have a good or excellent score. While it’s not always required, it may be more difficult to find a lender who is prepared to enter into an agreement with you if your score falls below this. However, it’s important to be aware that lenders don’t solely rely on your credit score to judge your eligibility. They will also look at factors such as any other debts you may have and your ability to make regular payments.
What if I’m declined for credit?
If your application for car finance isn’t accepted, there may be a number of options open to you. For example, if you believe that the information held by the credit reference agency that was used to assess your application is incorrect, you can appeal the decision.
There are also steps you can take to improve your credit rating. This won’t help your current application, but it should improve your chances if you apply for a car leasing deal again in the future. In general, the best way to do this is to ensure you make any repayments on time. Over a period of time, this will help to build up your score. Another tip is to try to get rid of outstanding debts before applying for new credit agreements.
If you have not already done so, you should also make sure you are on the electoral register. Ensure that all the details of your credit file are accurate too. Even a small inaccuracy, like a slightly incorrect address, can lower your score.
It’s also a good idea to check if your credit rating is linked to another person. Having a partner, relative or friend’s rating connected to yours through a joint account could reduce your score if they have a poor credit rating. Keep a lookout for any fraudulent activity on your credit file too. For example, someone may have applied for credit in your name without your knowledge. If you suspect that something like this has happened, contact your credit reference agency straight away to get your file updated.
Improving your credit rating can take time. If you’re looking for a quicker solution, you may wish to consider alternative finance options. For example, depending on the finance provider, you might be able to make a joint funding application with a partner or family member. Usually, this option is only available if you’re living with the person who you wish to take the joint agreement out with.
What car lease can I afford?
If you’re in a position to lease a car, you’ll need to think about what your budget can cope with. Although spending more money each month could help you to get a better vehicle, it could also put your finances under pressure. So, when you’re considering how much you can afford to spend on a car finance deal, there are certain things you’ll need to take into account.
For instance, you’ll have to make sure you can cover the running costs of the vehicle, including insurance, Vehicle Excise Duty (VED) - formerly known as road tax - and fuel. It’s also important to plan for the unexpected. In case you face sudden costs, like lost income or home or car repair bills, it’s useful to have an emergency fund in place. A good rule of thumb is to make sure you have enough savings to cover at least three months’ essential outgoings. Ideally, your monthly expenses should leave you space to build your savings up.
Being sensible when it comes to setting your budget can help you to protect your finances and give you added peace of mind.
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