Car leases and credit rating: everything you need to know
At Leap Vehicle Leasing, one of the most common questions we get asked about car leasing is: do you need a credit check to lease a car?
The answer is simple: yes. Credit checks are a legal requirement of the Financial Conduct Authority (FCA) regulations. Whether you’re leasing a car for business or personal use, you will have to submit to a credit check before you can be approved for financial lending.
If you’ve never leased a car or had a credit check done before, we know the process can seem confusing and a bit intimidating – but it’s actually very simple.
We’ve put together this article to answer all your questions about credit checks and guide you through the process of applying for car leasing finance.
What is a credit check and how does it work?
A credit check is an examination of your credit history. It provides lenders with information on your financial behaviour and can help them predict whether you are likely to make credit payments on time.
The information is usually presented in a report by a credit reference agency (CRA) who then condense it into a three-digit credit score that falls in a band ranging from “poor” to “excellent”.
Your credit score is an indication of how reliable you are at borrowing and repaying money. The exact number may vary slightly, however, as the three main CRAs in the UK – Experian, Equifax and TransUnion – all have different scoring systems.
By submitting a car leasing application, you are giving the lender the right to check your credit report. Most creditors will let you know before performing the check, but they aren’t legally required to.
Soft credit check vs hard credit check
When you apply for any kind of car financing, the company can either perform a soft credit check or a hard credit check. Both examine your credit report in different ways – with different goals and a varying impact on your long-term credit history.
A soft credit check will only show select information, rather than your entire credit history. These types of credit checks are often used verify your identity. Because soft checks aren’t logged on your credit history, they won’t impact your credit score.
Hard credit checks, however, examine your full credit history. This is the type of check creditors use when you apply for finance: a credit card, a mortgage, a bank loan, a phone contract, or – of course – a car lease. A hard credit check will show creditors whether you can afford the payments and will be recorded on your credit report for up to a year – or more.
Some debt collection checks can remain visible for up to six years, so it’s a good idea to always perform a soft check on your own credit score before applying for car leasing finance, and only submit applications when you’re sure you’re eligible.
Do you need good credit to lease a car?
Yes, you will usually need good credit to lease a car. Most leasing providers won’t lease a vehicle to someone with a bad credit score.
Young people living at home may also run into the problem of having no credit at all. This can make it just as hard to get approved for a car lease, as financial lenders have no proof that you will be a good borrower.
There are specific companies that provide either no credit check leasing deals or leasing to people with poor credit scores, but they will usually require a guarantor. The monthly costs or initial payments will also be much higher than if you had good credit.
It’s worth taking the time to build up and improve your credit score before applying for a lease deal, as better credit scores will have lower interest rates and reduced monthly payment costs.
What credit score do you need to lease a car?
If you want to lease a car, most finance companies will usually require a credit score that is “good” or “excellent”. Using Experian’s scoring system means you would need a credit score of at least 881.
However, this isn’t an exact science. Different credit reference agencies use different scoring systems, and there is no magic number that immediately qualifies you for car lease financing.
What information will lenders see on my credit history?
Your credit report will provide lenders with relevant information on your identity and finances, including:
- Personal information: Your name, date of birth, electoral roll information, current and past home addresses, current and past employers, phone numbers, etc.
- Public records: Any County Court Judgements (CCJs), Individual Voluntary Arrangements (IVAs), payday loans, repossessions, or past bankruptcies will negatively impact your credit rating.
- Financial credit accounts: Information on any credit cards, loans, mortgages, mobile phone accounts etc. This can include credit limits, overdrafts, debt, any missed or late payments, and the amount of times that has happened.
- Linked credit agreements: Your financial connections to other people and any joint credit you may have – for instance a shared mortgage.
- Past credit checks: Any previous hard credit checks made for similar applications in the last 12 months.
Creditors will use this information to build a picture of your borrowing history and decide whether they believe you’ll make the agreed monthly payments on your car lease.
What happens after the credit check?
Once your credit check has been approved by the lender, we’ll confirm the final monthly price for your car lease and sign the paperwork. Then you’ll make your initial payment, and we’ll arrange for your new lease car to be delivered to your home.
Leap Vehicle Leasing are not a financial lender. We do not perform credit checks ourselves and have no influence over the finance companies, but please get in touch if you have any questions about the process of car leasing. We can help you understand the steps you need to take to secure financing and drive away in your dream lease car.
