Whether you’ve just passed your driving test or thinking of leasing a car for the first time, many young drivers are turning to car leasing as a viable alternative to buying a new car with a bank loan or dealer finance. In fact, research from Experian found that 1 in 5 young drivers aged between 18 to 24 years old are choosing to lease their vehicle, more than double any other age group.
With its attractive low monthly payments, low initial rental and flexible contract terms, leasing can be an affordable, often cheaper way to get behind the wheel of a brand new car. But as a young driver, is car leasing right for you?
To help you make an informed decision about leasing your next new car, Nationwide Vehicle Contracts has put together short guide on leasing for young drivers, including everything you need to know about age restrictions, passing the credit check and the types of the contracts available.
If you’re new to car leasing, chances are you’ll have lots of questions about how car leasing works.
Put simply, car leasing is a long-term rental agreement which allows you to use a car for a fixed amount of time, usually 2, 3 or 4 years. At the start of the agreement, you pay an initial rental (usually equivalent to three months rentals), followed a fixed monthly price for a set period of time. When the lease period ends, you simply hand the keys back and walk away or take out a new car lease agreement.
Whether car leasing is right for you depends on a lot of factors including how much money you have to spend (both up front, as well as for the monthly rentals) as well as how much you intend to drive and whether you want to own the vehicle.
Before making a decision about whether car leasing is right for you, consider:
As with any major purchase decision, it is important to way up the pros and cons of all options available to you before making a decision on what best suits your individual needs.
Many young drivers prefer car leasing to ownership for a number of reasons. Car leasing offers many advantages including:
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:
Provided you are over 18 years old, have a full UK driving licence and are able to afford the monthly rentals, you can apply for a lease agreement with Nationwide Vehicle Contracts. There is no upper age limit.
Unfortunately, we are unable to offer lease agreements to drivers under the age of 18. This is because a lease agreement is a form of credit and a person under 18 is considered a young person and therefore cannot usually be legally held to a contract.
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:
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.
It is forbidden for someone to take out a lease agreement on behalf of someone else. This could include a parent taking out a lease agreement on behalf of their son or daughter or a close friend taking out a lease agreement for another person. This is also known as accommodation finance.
While accommodation finance is not actually illegal, it is forbidden by the finance provider. This is because there is a greater risk of the finance company not being able to get the car or their money back in the event of a contract breach.
It is worth pointing out that while accommodation finance is not illegal, not declaring that the person taking out the lease is not the main driver is illegal and both parties involved (the person applying for the finance and the person that they taking out the lease for) could be charged with fraud.
Here at Nationwide Vehicle Contracts, we specialise in two types of lease contracts – Personal Contract Hire and Business Contract Hire.
If you are applying for vehicle finance as a private individual, you may be eligible for a Personal Contract Hire (PCH) agreement. PCH is the most common form of private car leasing and all personal lease prices include VAT. Check out our guide on Personal Contract Hire to find out more about this type of contract.
If you are applying for vehicle finance as a limited company, partnership, sole trader or LLP, you may be eligible for a Business Contract Hire (BCH) agreement. BCH is a particularly popular option for VAT registered companies as they can claim back 50% of the VAT for the supply of the vehicle. All business lease prices exclude VAT. Check out our guide on Business Contract Hire to find out more about this type of contract.
Have a question about car leasing? Visit our How Leasing Works page to find out more about leasing a vehicle or call Nationwide Vehicle Contracts today on 0345 811 9595 to speak to one of our experienced leasing consultants.