Bad credit car leasing

A guide to leasing with bad credit
Do you actually know what your credit score is?
How leasing can improve your credit score

Written by Keith Adams Published: 8 February 2021

Generally you’ll need a good to strong credit rating to be accepted for lease deals. However, there are companies out there that specialise in car leasing with bad credit.

Word of warning, you should expect these deals to be more expensive than identical deals for people with excellent credit scores.

If you’re looking for a brand new car for the lowest monthly price, leasing is still a savvy option, even if you have bad credit. That’s because you’ll never own the car. It works much like a form of long-term rental. This means the price per month is cheap because you’re not buying it.

>> Search for car leasing deals

>> Not looking to lease? Read our broader article about bad credit car finance

Why your credit score matters

Applying for any type of finance in the UK requires the lender to check your financial history.

The reason? To make sure you can afford it. No matter if you’re applying for a lease agreement, a bank loan, or a PCP/HP style agreement, your credit score will be checked.

Generally, people have good or bad credit scores. Good credit scores are associated with high numbers. People who have these scores have demonstrated high levels of control over their finances.

For example, people with good credit rating scores will rarely have missed a payment. Generally, these types of people have incomes that exceed their outgoings, and therefore can comfortably support a loan. Broadly, they have an unbroken employment record and don’t have Country Court Judgements (CCJs) either.

People who sit in the bad credit camp are normally the opposite of this.

A surefire way of having a low credit score is frequently going overdrawn, or being married to someone with a poor credit score. Not having a bank account is another way of guaranteeing a poor credit result.

Being rejected by multiple loan applications raises alarm bells to potential lenders too – all of this information is readily available to them.

Something else that can contribute to a bad credit rating is, bizarrely, not having taken out many loans in the past. This gives a person what’s called a ‘thin’ credit history. Basically, there’s little for the lender to go on, so it assumes the worst. One example of a person with a thin history is a young borrower applying for a loan for the first time.

All this being so, it sounds like someone deemed to be a poor credit risk or to have bad credit would find it impossible to lease a car in the UK. Fortunately, this is not so. By taking some simple but responsible steps, a person with bad credit can turn the odds in their favour and successfully apply for finance to lease a car.

How to lease a car with bad credit

Even if you have bad credit it is possible to lease a car. Here’s how:

Check your credit rating

Examine your credit file to see if it needs updating or correcting. The three major credit reference agencies are Experian, Equifax and TransUnion. By law, you can check your rating for free but the agencies often bundle a check into other services and charge around £2. They operate checking services called CreditExpert (run by Experian), Clearscore (Equifax) and Credit Karma (TransUnion). Alternatively sign up to free checking services such as Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club. If you see any errors on your file, tell the reference agency. It will have 28 days to check your report and, if necessary, amend it.

Clean your file

Get your finances in order by settling loans if you can, closing redundant accounts and terminating questionable financial partnerships such as a joint account held with another bad credit risk. However, the effects of these actions can take some months to filter down and improve your rating.

Only borrow what you can reasonably afford

Demonstrating a realistic grip of your situation should improve your prospects of getting that finance deal.

Pay a higher deposit

Again, you may be asked to pay a higher deposit that reflects your low credit rating. Car leasing with bad credit and no deposit is rarely available.

Lease a lower-value car

You may be offered a smaller pool of cheaper new or used cars in place of shiny new premium models. Remember, though, that securing the lease is your goal since it’s an opportunity to demonstrate financial responsibility, your reward being a higher credit rating and a better car next time.

Lease for a short period of time

Car leasing contracts for 90 days or less don’t require a credit check. Although, it should be noted, that short-term car leasing generally offers poorer value for money than regular leasing deals.

Car leasing with bad credit and no deposit

Leasing a car with no deposit is a fairly simple idea. Don’t think this works out as a discount, though. Generally instead of simply not paying a deposit (also known as an initial payment), the money you would have paid up-front is split between your monthly payments.

Having a bad or poor credit rating changes things. Generally, if your credit score is low, you’re more likely to default on the money you owe, making you more of a liability.

If you have a poor or thin credit score paying the initial rental reduces the amount you’re borrowing. This means the finance company might look more favourably on you.

>> No deposit car leasing explained

How leasing with bad credit can improve your credit score

There’s only one way to get a good credit rating and that’s to borrow money responsibly. It’s like insuring a car. The longer you have insurance for and the better your driving record, the less you pay for it (at least that’s the theory).

In borrowing money on a lease deal and paying it back on time you’re demonstrating that you can manage your finances. Everything else being in order, credit reference agencies will consider you to be a good risk. As a result, your credit score or rating will improve.

It won’t happen overnight. You must be able to demonstrate a consistent record of sound financial management.

Despite this, leasing as a bad credit risk is a good thing to do since it’s taking that first step on the road to improving your credit rating and one day, being regarded as good credit.