What is bad credit car leasing?

what is bad credit car leasing - ratewise
by ratewise

You have this dream of getting and driving a new car or a near-new car. You get excited thinking about this dream, but the moment you remember that your credit score is negative, your spirit gets crushed.

Then, you ask yourself, “How feasible is my dream of driving a new car when I have bad credit?” But we are here to let you know that you shouldn’t ditch that dream yet.

You can still get a new car even with bad credit. Think of it this way, and it is true that a bad credit might make it difficult for you to get a car but what if the car is essential to land you a job that will pull you out of bad credit?

So, the question now is, how can you get your dream car with a bad credit score?

Bad credit car leasing

With bad credit car leasing, your dream of driving a new car is still within reach. Here, you are not paying for the total cost of the car. You are only paying for the time you will be using the car.

And these payments may be made monthly, depending on your contract with the dealer. Once the contract is over, the car returns to the dealer.

Bad credit car leasing might seem like a good option to you, but there are some limitations to consider.

Difficulty in getting approval

When it comes to bad credit car leasing, it will be difficult getting approval from dealers. And this is no fault of theirs because you are a risk to them.

Just like lenders, lessors will asses your application based on your credit score. If they notice that you have a bad credit history, they might turn down your request.

You pay higher costs

Let’s say you were lucky enough to get approval despite your bad credit, another problem you will likely face is this – you will be charged higher financing cost.

When you have a history of failing to pay your bills on time, lessors will consider you a risk. Thus, they will increase your monthly payments in case you fail to repay.

What is a personal contract purchase (PCP) plan?

Personal Contract Purchase (PCP) plans – which are currently the best and most popular means of financing a new car are a form of car finance that lets you loan a car from a finance company.

Let us put it this way – it is like a long term car rental, letting you use the car until the contract comes to an end. With PCP, bad credit car leasing is easily accessible to customers.

Before you start using the car, you will be asked to make a deposit, and as the months go by, you will need to make monthly payments.

The PCP deals are usually between 18 and 48 months. And in most cases, when you make a high initial deposit, your monthly payments will be lower.

Do you own the car?

With PCP deals, you do not own the car. You are just renting it from a finance company while making monthly payments. At the end of the contract, the ownership of the car does not automatically transfer to you.

If you want to keep the car at the end of the contract, you will need a make a “balloon payment.” This covers the cost of the vehicle. When this payment is made, the ownership of the car shifts from the finance company and becomes yours.

Will your credit history be considered?

When applying for PCP deals, your credit history will be taken into consideration. If you have bad credit, that doesn’t mean your application will be rejected. But your monthly payments will be higher than the rates you saw during the advertisement.

How can you improve your chances of getting approved?

Bad credit car leasing is still an option if you consider the following before applying.

1. Discover and deal with the problems in your credit report

The first step you should take to improve your bad credit for instant approval is to secure your full credit history.

This will help you reevaluate how you have spent your money in the past and areas you need to improve on. However, you should make sure that your credit profile is up to date, and they are no errors in it.

2. Voter registration

You need to do is make sure that you register to vote. When you apply for a lease, the lessor will check your credit history, which would include your name and address. If these details are retrieved from the electoral roll, and it might work in your favor.

3. Keep up with your current repayments

If you have a present debt that you are still paying off, make sure that you always make the repayments on time.

This will not only improve your credit score but will also prove to your potential lender that you can be trusted to make the monthly repayments as agreed. With these in place, you will most likely secure your dream car.

However, we understand that it may not be easy keeping up with these payments. To solve this problem, we advise that you assess your current spending, see what you can cut down so you can repay the current credit.

4. Make a high initial deposit

Of course, when leasing a car, you must pay a deposit. And if you have a good credit history, the amount to be deposited will be around 10%. But if you have a bad credit score, lenders may not consider you unless you increase your initial deposit.

It gives them an assurance that you can afford to make the required payments on time. Suffice it to say that the higher the initial deposit, the stronger the deal.

5. Disassociate yourself from people with a bad credit history

To get approval with your bad credit, you need to cut ties with people you were financially linked to in the past who have bad credit. They could be the reason why your credit score keeps getting lower.

Let’s say you share an account with someone who has bad credit; the best thing to do is to issue a notice stating that you are no longer financially linked to them.

6. Get a guarantor

If you are struggling to get a car lease with your bad credit, consider getting someone with an excellent credit history. It could be your family member or a friend, but make sure they have a good credit score, and you can trust them.

In the event where you are unable to make the repayment, they can be able to take over the debt. However, before taking this step, let your guarantor know of this responsibility and make sure they approve of it.

Having a guarantor serves as a reassurance to the leasing company that payment will be made on time.

Is leasing a used car a good idea?

The idea of leasing a used car might be appealing to people with bad credit because the monthly repayments will be lower. So, instead of going for a new car where you have to pay a high initial deposit, consider leasing a used car instead.

Alternatives to bad credit car leasing

In a situation where your car lease application has been turned down because of your bad credit, an alternative you can explore is this – taking over someone else’s lease.

This is known as “lease swap” or “lease transfer.” To qualify for this lease, you might need to have a similar credit score as the original lease owner. Once approved, you will be responsible for the remaining payments.

Conclusion

Leasing a car is still possible despite your bad credit. You may not get instant approval, but there are steps you can take for that to happen.

And if all your efforts don’t work out, you can just as well consider taking over someone else’s lease as long as you both have a similar credit score.

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Categories: Car Finance
Tags: Bad Credit