Does renting a car affect your credit score

Leasing is basically long-term rental. You don’t own the car outright – you’ll pay a monthly fee to use the car over an agreed period of time, and number of miles.

If you want a car leasing contract, you’ll have to pass a credit check first. A positive credit history may help your chances of being approved for a leasing agreement.

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Why do people lease cars?

Some people can’t afford to buy a car outright, so leasing a car, as opposed to paying a lump sum to buy one, may be a better option.

Leasing a car might also be more suitable for people who drive fewer miles, or are able to keep their car looking clean and tidy – they’ll avoid paying extra charges for repairs and cleaning when the contract ends.

It can also be a good choice for people who might want to change their car after a few years.

What is personal contract hire?

Personal Contract Hire is a leasing agreement which lets you drive a new car over an agreed time period, typically between two and five years.

The benefits:

• You don’t have to worry about selling it
• Terms can be flexible
• PCH often comes with maintenance packages which covers things like road tax

The potential risks:

• If you return the car with damage there could be extra charges for repairs
• If you leave early, you may have to pay extra fees
• Mileage limits can’t be changed midway through the contract, so if you drive over your agreed limit, you’ll be charged
• You may have to pay around three months’ lease upfront

Leasing a car with bad credit

If you have a poor credit history, you could be seen as more of a ‘risk’ for lenders, so some lenders may increase the interest rate they apply to your repayments. Bad credit can also mean your repayments are likely be higher, so it’s important to make sure you can afford them.

Finally, you may also have to pay a deposit; however, this isn’t always a bad thing. If you pay a large initial deposit you’ll lower your monthly repayments and interest charges.

You do have alternative options if you’re refused credit for a car – the main priority should be finding out if there are any issues with your credit history, and then working out how to resolve them.

Using a guarantor on a car lease

A guarantor is someone who will take on your repayments if you’re unable to continue making them. This means that if you miss a payment on your car, your guarantor is legally obliged to take care of it.

If you want a guarantor, they must be someone who:

• Is generally at least 18 or 21 years old
• Has a good credit history
• Is financially stable

How does leasing a car affect your credit score?

Because you’re effectively ‘borrowing’ finance when you lease a car, leasing will affect your credit score if you don’t keep up repayments – but it can be beneficial if you make all of your payments on time.

• As long as you make your repayments on time, there shouldn’t be a negative effect on your credit history
• Demonstrating a history of responsible borrowing can help your chances of getting mortgages, car insurance and credit cards in the future

Credit companies see a lease as a loan – the only difference is that the ‘loan’ is the sum of the payments you owe and not the car’s value.

While not the most popular form of vehicle ownership locally, leasing is still a viable option for many of us. Today we determine how leasing affects your credit score.

Purchasing a vehicle is generally considered the second most expensive asset that consumers invest their money in, with the first being property. With this in mind, many of us will use smaller clothing or grocery accounts and various other monthly payments to build a credit profile in order to get favourable lending rates. When looking at real estate, people often have built up a credit score using the aforementioned smaller monthly payments and indeed, a vehicle payment of some description. The question is, will leasing a car afford you the same credit score benefits as a hire purchase scenario?

What is leasing?

Before we determine this, let's take a look at what leasing is, exactly. In essence, vehicle leasing is a long-term rental of a vehicle for a fixed period at an agreed monthly rate. The lease term varies, but is usually between two to four years, after which the vehicle must be returned to the leasing company or purchased for the residual value owed. An important consideration is that there are often mileage restrictions placed on the leased vehicle and hefty penalties for exceeding these restrictions. The obvious benefit of leasing is a lower monthly payment, or the ability to drive a better car for a lower rate while insurance is often included in the price, too.

In short, yes, leasing will either positively or negatively affect your credit score simply because the agreement, like a property rental, will see a fixed monthly payment come off of your account. The creditor or leasing agency in this instance will therefore report your successful or unsuccessful monthly payments to the credit bureau, either improving or damaging your credit record. Much like a traditional hire purchase loan agreement, your ability to consistently make the monthly payments for the stipulated time frame will determine how the lease affects your credit record.

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