Car Leasing is a contract hire agreement, which is a type of car finance. When a lender receives your finance application, they are reviewing your credit worthiness. They’ll assess your personal credit report to check whether you meet their underwriting criteria. As a responsible lender, they’ll also need to assess your affordability too.
On many occasions when a customer has been declined for car finance, they’ve asked if they can pay all the rentals in advance to avoid the necessity for credit, but a car lease agreement is calculated based on the re-sale value of the vehicle too. If you fail their checks, they’re not going to allow you to keep their asset for the duration of the lease, which is usually between 2 and 5 years.
Your personal credit report is very important as it builds a picture for lenders to see how you manage current and passed credit accounts. It’s a wise decision to access your credit report on a regular basis, so that you can see what lenders can see when you apply for credit. The higher your score, the more likely you are to be approved for finance. Having a higher credit score will give you access to the leading rates with the lowest APR attached too.
Your credit score is only one part of a lenders underwriting criteria, they’ll also assess the content of your report, so any missed payments, activity whereby you’re close to your lending limit could also result in a declined application. Affordability has been emphasized massively since the credit crunch, which is why some lenders/credit scoring companies will ask you to activate your affordability score with open banking. Open banking is an industry standard way of securely sharing your bank account data between partners.
There’s a familiar saying that in order to obtain credit, you must first have credit. Obtaining credit, isn’t easy when you’ve not had credit in the past, so your credit report won’t show lenders how you’ve been able to manage credit. A good way to get on the ladder of credit is to start as soon as you’re old enough to obtain credit and begin to raise your score. There’s a few credit builder cards that are designed to lend to people with no credit history. They typically start with a very low credit amount but assess the limit regularly and raise the credit limit by small amounts, once you prove that payments are made on time each month. How quickly the credit limit increases depend on your activity. If you only pay the minimum payment each month, then don’t expect the credit limit to be raised. If you pay the full outstanding balance off each month, then this will demonstrate to lenders that you are borrowing sensibly and managing the credit well.
Lots of lenders check to see whether you’re on the electoral register at the home address you’ve provided on your finance application. You add yourself onto the register by contacting your local council.
Lenders want to see stability. Many applications require at least 3 years address and employment history, some require 5 years. If you change jobs every few months and have moved house 4 times in the last 3 years, it’s likely that lenders will have difficulty tracing you to the addresses declared and could decline your application. Lenders won’t take unnecessary risks that could leave them exposed.
Any missed or late payments will be displayed on your credit report and will raise questions to your affordability or lack of financial housekeeping. To avoid a missed payment as you simply lost track of the date, we’d recommend that you set up a direct debit to pay at least the minimum payment on the account each month. Of course, it’s far better to pay the full balance off each month.
A hard credit search can remain on your credit report for 2 years, but most tend to drop off after 12 months. Multiple hard searches in a short space of time can affect your credit score as it makes you appear credit hungry. Different lenders adopt a differing approach, if an application was made to BMW Finance as well as Audi Finance within a few days of one another, some lenders would view that as rate shopping. However multiple applications to Hitachi finance for a kitchen, then Capital One for a credit card and Barclays for a personal loan is likely to ring alarm bells with lenders. If you are intending a new bathroom, home improvements and a new mobile phone all in the same year, we’d recommend that the applications are spaced out by 3 or 4 months. You can also complete an eligibility check, which is usually based on a soft search, which will indicate what loans or cards you’re likely to be approved for ahead of applying. This organically reduces the need for multiple finance applications.
Keep an eye on your report, check that the data contained within the report is correct and up to date. Spotting any fraudulent activity early can massively reduce the time and damage that a fraudster can cause.
There are periods that we can use a high percentage of our credit limit. Usually at Christmas we’ll see someone who usually only uses 7% of their limit increase to 80 or 90%. It’s wise to keep under 30% credit utilization as this shows lenders that you’re managing your credit accounts well and don’t appear credit hungry.
Allowing lenders to view your bank account data through open banking demonstrates your affordability and how your bank account is being managed.
If you’re only 19 you may well be approved for car finance, but it may be at a higher rate through a sub-prime lender. Ask a parent or guardian be a guarantor on your application so that you can apply through a prime lender for the finance. A guarantor gives the lender the security. They’ll credit search them too, tie them to the agreement, which means that if you don’t pay that they will. There’s no one that knows how their child manages money better than a parent, when a lender can’t view your history through a credit report.
Keep your bills to one address. If you are living in student accommodation term time, but your permanent home address is at your parents, make sure that your bills still get sent to your permanent address, this is the address that holds the most credit history.
Make sure that as soon as you move address that you notify all lenders that you have activate accounts with as well as your driving licence and utility companies. The same applies with a name change.
If you have a credit card account that you’ve not used for more than 12 months, don’t close the account; keep it open. Lenders can view the history of that account for the last 6 years, so it’s good for them to be able to view the account.
If you’ve not obtained credit for a while, you don’t want your creditworthiness to reduce due to inactivity and lack of history. If you plan a purchase with cash, perhaps take advantage of an interest free or buy now pay later scheme. Keep the money in a separate account and then settle it when due to maintain a good score.
Your report changes each month, there’s free platforms that allow you to check your own report each month and access free eligibility checks. Sites such as Clear Score. To stay on top of your report and build it, you need to know what information is contained on your report.
No matter how tempting it is to access cash before payday and have that night out. Do not withdraw cash from a credit card. Not only is there a credit advance fee but it will affect your ability to borrow money in the future. If you need to access cash, then obtain a personal loan instead.
The car lease deals listed on the main section of our site assume a good to very good credit rating. If your score is less than this, you can obtain a car lease with poor credit rating, which will help you to build up your credit score by making the monthly payments on time each month.
For young drivers with no credit score as opposed to having negative information recorded against you, we’d recommend that you explore car leasing with a guarantor first. The guarantor is usually someone closely related to you and they would need to have a very good credit score in order to indemnify the agreement.