Car leasing with bad credit: options including PCP

Affordable payments despite a poor credit score: PCP finance can provide an alternative to car leasing with bad credit

BuyaCar team
Dec 18, 2018

Leasing provides one of the cheapest and most straightforward ways of driving a brand new car. Monthly payments are kept low because you rent the vehicle - usually for between two to four years. Then, like your holiday hire car, you simply return it at the end.

Because you're not buying the car, your repayments remain low. There are no interest charges either because you're not borrowing money. The downside of leasing is that you'll normally need a strong credit rating to be accepted.

If you have a poor credit rating, or just one that's lower than average, then affordable leasing may not be available. However, this doesn't rule out a similar type of arrangement with relatively low repayments: PCP car finance.


Leasing alternatives: PCP finance

Personal Contract Purchase (PCP) finance offers a similar arrangement to leasing, but it's available for used cars as well as new models. Your repayments only cover part of the vehicle's cost (the value that it's expected to lose during the agreement), so they are relatively cheap. At the end, you can hand the car back and walk away, just like a lease.

But PCP is more flexible than leasing, so you also have other options at the end of the agreement.  You can buy the car for a set fee (known as the balloon payment), which can be done by refinancing. If the car is worth more than the set fee, then you’ll be able to trade it in and use the difference towards a deposit on another model.

Leasing and finance repayments with bad credit

You’re more likely to be accepted for a PCP agreement than leasing if you have a low credit score because PCP is a full finance agreement where interest is charged, allowing lenders to adjust the rate for their risks. 

As a result, rates will be higher if you have a low credit profile and you’ll normally be required to pay a deposit. This isn’t a bad thing if you have the money: the bigger the deposit, the lower your monthly repayments, including interest charges.

As with any type of finance or leasing, lenders will check to ensure that repayments are affordable, alongside all of your other essentials, such as rent or mortgage payments.


Affordable PCP arrangements with poor credit

Your PCP repayments are based on the amount of value that your car is expected to lose during the agreement. So if you buy a car that holds its value well, such as the Mini Hatchback above, then this will reduce your repayments.

The example monthly prices shown on BuyaCar are representative examples, based on a typical interest rate; if you’re borrowing with poor credit, then the cost is likely to be higher.

You’ll find more details about the used value of different models in our buying guides.


Leasing a used car with bad credit

Most leasing arrangements are restricted to new cars, but PCP finance is available for both new and used vehicles that are less than four years old.

This provides far more options with more cars in a wider price range. Older models are available too, but you’ll normally need to spread the cost with Hire Purchase (HP) finance, which will result in you owning the vehicle.


Improving a bad credit score with leasing

Successfully applying for PCP finance and making your monthly repayments on time can often improve your credit score, which may help you to lease a car or take out finance at a lower interest rate in future.

The scores are meant to reflect the risk that lenders take when they offer finance, so a strong record of making repayments on time will normally result in a higher score, as future lenders can be more confident that their money will be returned.

Other factors that affect your credit score include County Court Judgements, bankruptcies and the length of time that you have lived at your address. The more stable your situation is (for example, living at one address for a long time, having a permanent job and appearing on the electoral roll), the more creditworthy you are likely to be.

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