What are the disadvantages of car leasing for a new driver?
While car leasing offers many advantages, it is not a suitable product for everyone. As with any type of finance contract, there are many pros and cons to consider. Potential disadvantages include:
- You must have a good credit rating. Most funders ask for a good to excellent credit score in order to be accepted for vehicle finance.
- You won’t own the vehicle. For Contract Hire and Personal Contract Hire agreements, you must return the vehicle at the end of the lease agreement.
- Early termination can be expensive. If you need to get out of your lease contract early, this will be subject to early termination fees and penalties, typically around 50% of any outstanding rentals.
- If you exceed your agreed mileage, a charge will be payable. Any mileage over the agreed amount is charged at the excess mileage ‘pence per mile’ rate as set at the start of your contract
- You need to stick within fair wear and tear guidelines. Failure to maintain and return the vehicle in “reasonable condition” could result in excess wear-and-tear charges.
- Insurance isn’t included in the cost. You are responsible for arranging your own insurance on the vehicle and this must be a fully comprehensive insurance policy.
- You cannot customise the vehicle. While some small and reversible modifications may be permitted by the funder, permanent customisations are not allowed.
I have no credit history, will I be eligible for finance?
In order to lease a vehicle through Nationwide Vehicle Contracts, you will need to undergo a credit check as part of the finance application process. The biggest issue for many young drivers is that they little to no credit history, making it difficult to obtain finance. This is because lenders tend to prefer lending to established borrowers who they can better assess the risk for paying back debt.
In order to lease a vehicle through Nationwide Vehicle Contracts you must:
- Be over 18 years old
- Have a full UK driving licence (a provisional licence will not be accepted)
- Be able to afford the monthly rentals
- Be a UK resident
- Hold a UK bank account
- Have a regular monthly income
As with any finance agreement, most funders ask for a good to excellent credit score in order to be accepted for vehicle finance. It is worth pointing out that no lender uses your credit score alone to approve or decline you for finance. Many other factors come into play such as your ability to make regular payments on time and any other debts you may have.
If you are a first time borrower with no credit history, you can improve your chances of being accepted for vehicle finance by working to establish a positive credit history. The Money Advice Service offer advice on how you can start to build a credit history. This includes:
Open and manage a bank account. Setting up and using a UK current account will help build your credit history because it demonstrates you have a responsible, ongoing relationship with the bank. Just make sure you run your account responsibly e.g. make sure you have enough money in your account to cover your payments each month.
Use Direct Debits to pay your bills. Set up some regular Direct Debit payments to pay bills such as your mobile phone and other household bills.
Don’t miss payments. Make sure you pay all your bills on time, as a missed or late payment will count against you. If the lender has to go to court to get the money, then a county court judgment (or decree in Scotland) will severely affect your ability to get credit and it will remain on your file for six years.
Register on the electoral role. If your name isn’t on the electoral register, make sure you add it as soon as you can. Being registered to vote in the UK means lenders can check that you live where you say you do.