Car Leasing - how likely to be accepted?

djr18

Hi everyone,

I am a company director and was originally looking at leasing a car (Contract Hire) under my business. I can claim back the VAT but would have to pay a Benefit in Kind tax which makes leasing the car under the business not very tax efficient.

A better option would be to lease the car under a personal agreement and then charge expenses back to the company.. However, I am unsure about the debt to income ratio (under 50%) that has been talked about on these forums. I earn £48k, but I want to lease a car that has an invoice value of £40K (£421 per month X 35 months with a £5000 deposit).

My credit file is good with only a few missed payments back in 2008 / 2009. I have 3 credit cards £10K £9K and £9K limits that I regularly use and clear each month. I have settled a £15k Egg loan a few years ago. No mortgage. No debts

This is my first time leasing a car and would like to know about other members experience of the finance application and underwriting for car lease agreements.

Thanks for any help in advanced.

David

Thrugelmir

Only 50% of the input VAT is recoverable.

CarLeasingGuy

Hi David, I used to work for a car leasing broker and I have to say your situation is pretty familiar to me!

It's basically the textbook dilemma that so many people face when they think about leasing a car.

As a first step, I would suggest checking out your credit file (and rating) with Experian and Equifax. Using sites like Topcashback and Quidco, you can actually earn a little bit of money from doing so (but make sure you cancel within the 30 day trial periods and avoid paying any subscription fees!).

This will give you a good idea of your credit status and you can also check everything on there for accuracy.

Regardless of the results of this, all the finance companies have different underwriting criteria, some use credit scoring alone, and others will want to see your last 3 months' personal bank statements and will pay much more attention to these than your credit score. + from experience you'd be surprised who they'll accept! I've seen some pretty poor applicants approved on countless occasions! A large initial rental (such as in the deal you mention, which is like a 12+35) give you a higher chance of success, as will a 'terminal pause' contract, whereby there is a payment holiday at the end of the contract. None of this is always strictly necessary though, and it depends on the finance company and what the applicant's financial standing is like.

There is at least one finance company out there that normally will only do business contracts, however for someone in your position, they will also look at a personal contract, and they will be as interested in your business accounts/bank statements as they are your personal bank statements.

Many people get upset at having to provide lots of information, but in general, the more you're prepared to provide, the better deal you'll get. People who have all their documents filed away neatly and are handy with a scanner tend to get the best deal. Stuff you may be asked to provide:

Personal application:
Clear copy of driving license (both parts), or passport (both must be current and not expired). This is used as photo ID and also proof of signature. So make sure anything you sign matches the signature on your ID!
Most recent full 3 months' personal paper bank statements (not summaries, not internet printouts)
2 paper utility bills as proof of address (dated in past 3 months). Driving license and bank statements both cover this, so only needed in their absence.
Completed personal finance proposal form

Business applications:
Signatures of 2 company directors
Completed finance proposal form
ID (passport and driving license) and proofs of address (utility bills - not credit card bill or mobile bill) for BOTH signing directors, basically same as personal requirements above, no bank statement requirement or personal financial data required though.
Recent full accounts (if not publically available). If accounts are poor, company is less than 2 years old, or accounts are old, management accounts or draft accounts may be required.

Often, willingness or ability to provide this info with an application can make a big difference. You'd be surprised how many people either don't want to provide it, can't find it, don't have it available, or just can't be bothered! Not every finance company will require it, and not every applicant will need to provide all of this, but it's worth knowing that you may need to and/or that it may help a borderline applicant.

What's the vehicle you are looking at? From your post it seems like you're looking at a specific deal. It would be worth finding out which finance company it is with (the finance company underwriting it, not the broker or dealer advertising it) and what their underwriting requirements are. I would refrain from making any credit applications or filling out finance proposal forms until you know this and also you have decided how you'd like to do it (ie business or personal contract). Is the price going to be the same regardless of whether it's a personal or business contract?

If you pay off your credit cards religiously every month, that should look good to any lender. Thrugelmir is correct that you'll only be able to reclaim 50% of the VAT if the car is ever going to be used personally and 100% if it is a 'pool' car. The maintenance component on a maintained contract is eligible for 100% reclamation of VAT, regardless of how the car is used. Also, in theory if you were to reimburse the company for the cost of running the car, you may not be liable for any company car tax.

There's also the liability aspect, if you and the company part ways, or if for any reason you can't maintain the contract, the liability for the contract is going to rest with either the company or you, depending on which path you've chosen.

A good broker will be able to go through all this for you and advise you how to do things.

This is probably WAY more information than you need! But, I hope it helps you in some way, and also proves a handy little guide to anyone else that may stumble across it who is in a similar position.

Best wishes,

John