Do you need good credit to lease a car?

Unsure whether your credit score is good enough to lease a car? Keep reading to get to grips with how your credit score affects your chances

By Matt Rigby August 12, 2021

In general, you do need a good credit score in order to lease a car. This is because car leasing - also known as Personal Contract Hire - is effectively like having a long-term rental car with set monthly payments, while car finance providers are able to charge higher interest rates to drivers with worse credit scores to reflect the greater risk of not getting their money back.

As with PCP finance and Hire Purchase, when you submit an application to a company for a car lease, they will ask at least three UK credit references to provide an assessment of your creditworthiness. The main reference agencies - Equifax, Experian and TransUnion - all use slightly different scoring models but in general, they provide a range of banded scales (normally five bands) to grade the likelihood of you making payments on time and in full. In the case of Experian, these are: very poor, poor, fair, good and excellent.

With most leasing providers, you will need to have a credit rating in the top two bands (in the case of Experian, that means ‘good’ and ‘excellent’) in order to be approved for a car lease. There are companies that will provide lease deals to people with poor credit scores, but your options will be limited, and the monthly costs or required upfront payments may be higher than if you had a better credit score.

If you have a lower credit score, it may be wise for you to consider PCP finance instead. As with leasing, PCP finance gives you lower monthly payments than Hire Purchase or a traditional car loan, as the payments only cover the amount of value the car is expected to lose during the contract, rather than its full price. So, if you want to run the car for the length of the contract and then hand it back, you can do this in a similar way to a lease - with nothing more to pay, provided you've kept the car in good condition and stuck to the pre-agreed mileage limit.

However, you also have the option to make a pre-agreed 'optional final payment' to buy the car at the end of the contract with PCP. If you choose to make this payment - which is typically around a third to half of the price of the car at the start of the contract - the car is then yours to keep.

Reasons for a poor credit score

If your credit score isn’t as good as it could be, there are several possible reasons for this (find out how to check your credit score here, if you're not sure how good it is). It may be because you’re not on the electoral roll or have a very 'thin' credit history, with little evidence of borrowing money and repaying it - if that's the case, there are ways you can build up a good credit history. Or it could be that you have too much debt already, or have a history of missing payments.

Some credit score issues are temporary, such as setting up new financial accounts too frequently or applying for credit too often (formal applications for finance leave a mark on your credit report and applying for finance left, right and centre makes it looks like you're desperate for money). However, issues like missing payments, being overburdened with debt, or being chased by lenders for repayment can be much more serious - and take longer to fix. Read our guide to how to maximise your chances of being approved for finance.

What might prevent a successful credit application

Your personal credit score isn’t the only factor leasing companies will consider when deciding whether to approve you or not. They will also look at the general affordability of monthly payments - the higher the proportion of your salary these are, the worse your chances - what other debts you may have and your employment status.

For example, if you have too much other personal debt such as credit cards close to their limit or a big overdraft, this can reduce your chances of being approved for a lease. That's because the leasing company is likely to deem you less able to make the monthly payments every month if you have a long list of other debts.

Similarly, if you’re self-employed or have an irregular income, this can make you seem more at risk of missing payments. Leasing companies are taking a risk in letting you drive their car, so the less evidence they have of a stable income or you consistently making payments, the less confidence they will have in your ability to pay them all the money due.

It’s worth noting at this point, too, that lease companies willing to lease to people with a poor credit rating are likely to be more stringent about these other aspects of an application for a lease agreement, as they are taking a bigger risk leasing cars to people with worse credit scores.

Alternatives if your credit score is too poor

Take out a joint lease

If your application for a lease has been declined, then some finance providers will consider a joint application. This is where a spouse or close family member applies with you, so you are able to combine the incomes from both applicants - as well as sharing the responsibility for making monthly payments.

This type of agreement is dependent on the credit scores of both parties, and is only possible if your partner, spouse or family member lives at the same address as you. The other person will need to have a notably better credit score than you to boost your chances of being approved.

Use a guarantor

You can also consider finding a guarantor - a third party who will take responsibility for payments if you - as the primary applicant, fall behind with payments on the lease agreement. The guarantor will generally have to have an excellent personal credit rating, will need to own their own home and cannot be linked financially to the main applicant.

Many finance providers will not accept guarantors, however, and those that will tend to do so only on a case-by-case basis. It is also possible to take out guarantor car finance with PCP finance. Opting for this should give you a better chance of being able to pay for a car on a monthly basis.