Bad credit car leasing: how to lease with a poor credit rating

Leasing can be a brilliant way of getting your hands on a new car without having to stump up the cash to buy it outright – but what if you have a bad credit rating? 

Well, that could cause a problem. Signing up for a leasing deal requires you to submit a credit check, and a bad score could result in you paying a high-interest rate or, worse still, getting refused altogether.

All is not lost, though – people with bad credit histories can still get their names on a lease deal or work towards improving their credit score to make leasing possible in future – read on to find out how to do it. 

How to lease a car with a bad credit rating

Leasing deal providers balance your monthly charge against the risk that you’ll miss a payment – the higher the risk, the more you’ll pay.

That extra cost could take the form of a higher initial payment – a better option if you want to keep your monthly payments low – or a higher monthly charge that allows you to spread the cost more evenly. Either way, you’ll pay more than you would if you had a good credit score.

Saying that it’s worth shopping around. Just because one company can’t offer you affordable credit doesn’t necessarily mean you won’t get a better deal elsewhere. There are companies that specialise in leasing cars to people with bad credit, often known as ‘subprime’ lenders and these may be able to arrange a deal for you where others can’t.

It’s also possible that your poor credit score doesn’t reflect your healthy financial position. Say you’re 17, live with your parents, don’t have a credit card and pay no monthly direct debits – in credit terms, you’re in the financial wilderness. 

But you do have some negotiating room. A regular income that makes the proposed lease deal easily affordable helps – a credit provider will want to see payslips that back this up – and it is also helpful if you can prove you’ve lived at the same address for two years or more. It means the finance company can send communications and, ultimately, find you if you don’t keep up your payments. 

Can I use a guarantor or co-signer on a leasing deal?

Using a guarantor or co-signer is another option. Essentially, your guarantor is responsible for the debt – if you don’t honour the lease agreement, they are legally obliged to. 

While this is common with house purchases, it might not be an arrangement all car leasing companies offer when you’re buying a car so it’s best to shop around until you find one that can. For a guarantor to qualify, they’ll also need to have a good credit rating. 

Bad credit car leasing: joint leasing

Another way to lease a car is to get a joint lease. A joint lease does what it says on the tin. Essentially, you and your partner or family member share the responsibility for the payment and pool your credit scores to get the car. 

What is a credit score?

Knowing your credit score helps you understand why you’re being refused a lease agreement or getting charged a high rate for the credit.

A credit score is a number between 300 (lowest) and 850 (highest) that ranks your credit worthiness, so someone with a credit score of 403 will pay more for credit than if they scored 803. 

The score is based on your credit history and will factor in everything from your current debt, salary, outgoings and ability to pay your bills on time. 

So, if you have a low limit on your credit card, miss payments and have a below-average salary, you’re going to score low. Certainly lower than someone who has an above-average wage, a high credit limit and who has no issue paying their debts on time.

How can I improve my credit score?

Improving your credit score means you’re less likely to be refused a lease deal and more likely to get a lease deal at a competitive rate.

Various free-to-use apps and websites can tell you what your credit score is and help you improve it, but using your credit card and paying the minimum payment on time is a good way to start. The same goes for paying your phone bill, mortgage, utility bills, rent, bank charges, subscriptions…and the rest. 

Alternatives to leasing with a poor credit rating: PCP

The downside of improving your credit score significantly is that it takes time, which you might not have if you’re desperately trying to get your hands on a reliable car.

In which case, it’s worth giving PCP (Personal Contract Payment) a think over. On paper, a PCP deal looks very similar to leasing – you pay a large deposit upfront, followed by smaller monthly payments for a period of usually between two and five years. 

However, with a PCP deal you can choose to buy the car at the end of the agreement – the money you’re paying covers the cost of the car’s depreciation, not its total value. It is a lower risk to creditors. 

Sign up for a PCP deal, pay everything on time and your credit score will improve, meaning it’ll be easier to lease a car next time. 

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