Leasing can be a great way to get your hands on a new car without having to shell out the money to buy it outright – but what if you have bad credit?
Well, that could cause a problem. Signing up for a leasing agreement requires you to submit a credit check, and a bad score could result in you being charged a high interest rate or, even worse, being turned down altogether.
All is not lost, however – people with bad credit histories can still get their name on a rental contract or work on improving their credit score to make leasing possible in the future – read on to find out how to do it.
How to rent a car with bad credit
Lease providers balance your monthly fee against the risk of you missing a payment – the higher the risk, the more you’ll pay.
This extra cost could come in the form of a higher upfront payment – a better option if you want to keep your monthly payments low – or a higher monthly fee that lets you spread the cost more evenly. In any case, you will pay more than if you had a good credit score.
Saying it’s worth shopping around. Just because a company can’t offer you affordable credit doesn’t mean you won’t get a better deal elsewhere. There are companies that specialize in renting cars to people with bad credit, often called “subprime” lenders, and these may be able to arrange a deal for you where others cannot.
It is also possible that your bad credit rating does not reflect your healthy financial situation. Say you’re 17, live with your parents, don’t have a credit card, and don’t pay any monthly charges; in terms of credit, you are in the financial desert.
But you have room for negotiation. A regular income that makes the proposed rental arrangement easily affordable helps – a credit provider will want to see payslips that prove this – and it also helps if you can prove you’ve lived at the same address for two or more years . This means that the finance company can send out communications and ultimately find you if you don’t keep up with your payments.
Can I use a guarantor or co-signer for a lease contract?
Using a guarantor or co-signer is another option. Essentially, your guarantor is responsible for the debt – if you don’t honor the rental agreement, they are legally bound to do so.
Although this is common with home purchases, it may not be an arrangement that all car rental companies offer when you buy a car, so it’s best to shop around until you find one. one who can. For a guarantor to be eligible, they must also have a good credit rating.
Bad leasing credit: joint leasing
Another way to lease a car is to get a joint lease. A joint tenancy does what it says on the tin. Essentially, you and your partner or family member share responsibility for 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 denied a lease or being charged a high rate for credit.
A credit score is a number between 300 (lowest) and 850 (highest) that ranks your creditworthiness, so someone with a credit score of 403 will pay more for credit than if they had a score. of 803.
The score is based on your credit history and will take into account everything from your current debt, your salary, your expenses and your 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, your score will be low. Certainly less than someone who has an above average salary, a high credit limit and has no problem paying his debts on time.
How can I improve my credit rating?
Improving your credit score means you’re less likely to be denied a lease and more likely to get a lease at a competitive rate.
Various free apps and websites can tell you your credit score 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, your mortgage, your utility bills, your rent, your bank charges, your subscriptions… and the rest.
Alternatives to leasing with a bad credit rating: PCP
The downside to dramatically improving your credit score is that it takes time, which you may not have if you’re desperately trying to get your hands on a reliable car.
Then it is worth thinking about PCP (Personal Contract Payment). On paper, a PCP deal is a lot like a lease – you pay a large down payment up front, followed by smaller monthly payments over a period typically between two and five years.
However, with a PCP deal, you can choose to buy the car at the end of the deal – the money you pay covers the cost of depreciating the car, not its full value. This is a lower risk for creditors.
Sign up for a PCP, pay everything on time, and your credit score will improve, which means it’ll be easier to rent a car next time.
Ready to choose which car to rent? Check out our list of the best deals…