You’re a young driver that’s conscientious and hard-working - BUT - you haven’t had a chance to build up a credit score yet. Or, perhaps you went through a rough patch in the past and fell behind with a few payments, earning yourself a less-than-perfect credit score (nothing to be ashamed of!).
If you fit into either of these brackets, then chances are, no matter whether you’re looking for a luxurious new car like the Mercedes-Benz A-Class or a simple Volkswagen Up! you’ll have a hard time getting approved for car finance.
That’s because the FCA (Financial Conduct Authority) requires that all finance companies carry out a car lease credit check before you sign up to a finance agreement to ensure that you’re able to manage your own personal finances.
Luckily, there are ways to get a personal contract hire deal with a poor credit rating!
Did you know, for example, that just like when you sign up to rent your first flat, you can use a guarantor to support your application?
What is a guarantor on a car lease?
A guarantor is someone who will assume responsibility for making payments in the event that you default on your monthly payments. If you are unable to make a payment on your car, your guarantor will have to pay for it instead.
Who can be a guarantor?
A guarantor will usually be a family member or close friend, though in the case of a business lease it could also be a managing director or colleague.
Your chosen guarantor must meet the following criteria:
- They must be 21 or older
- They must have a strong credit rating
- They must not be financially linked to you.
Will my guarantor get a credit check?
Yes - it’s important when applying for guarantor car finance that your guarantor has a good credit score, to ensure that they are able to keep up the monthly repayments on your lease car if you default.
It might be worthwhile asking your guarantor to access their credit file using a credit reference agency like Equifax, Experian or TransUnion to make sure that all the information on there is up to date before making an application for guarantor car finance.
What will happen if the guarantor also fails to keep up with repayments?
If you miss a payment, it will be the responsibility of the guarantor to make the payment. If they also fail to keep up repayments, they will damage their own credit rating and both of you could be issued with CCJs (County Court Judgements)
Can I use a guarantor on any lease?
Though guarantors are incredibly common in the property rental market, they are less common in car leasing. That being said, it certainly doesn’t hurt to ask.
It all depends on the credit broker - applications will usually be reviewed on a case-by-case basis.
What are the alternatives to car leasing with a guarantor?
If it’s not for you, or you’re struggling to find a finance provider that will accept an application with a guarantor, then there are some other options you might want to try.
If you're wondering whether to lease or buy a car and asking "do you need good credit to lease a car?", don't fret. There are some brokers which deal specifically with bad credit car leasing - though don't expect to find a great deal on a swanky new Porsche with these guys as they usually have a limited selection of cars to choose from.
You might also want to try applying for a joint leasing agreement if you have a willing spouse or family member.
It’s worth noting that, if you’ve got bad credit, you can’t ask a third party to take out a lease agreement on your behalf. This is called accommodation finance and is strictly forbidden.