Car on long term lease vs PCP agreement

davida1992

Hi all, looking for a little advice.

For the past 3 years I have had a car on a long term lease agreement, paying approx £265 per month for the car. I never really thought much of it, but I use Noddle to check my credit report and it always showed my credit report as between good and excellent. It showed by short term debt as basically what was on my credit card (which I pay off at the end of each month) and there was never any mention of my long term lease car agreement anywhere within Noddle.

Anyway, recently the lease term was up, and I decided to get something a little different and purchased a car on a PCP agreement instead. Payments are pretty much the same at £265 per month so I just assumed there would be little difference as my monthly outgoings would be the same.

However, If I look on my Noddle report, my short term debt has now shot up to the value of what I paid for the car on PCP and my credit rating has now dropped to between poor and fair.

I never really expected there to be much difference, I never live beyond what I can afford in terms of monthly payments etc, and I am careful in ensuring I can afford what I have. I am due to apply for a mortgage very soon and I feel that this change is going to affect me dramatically, especially since my credit rating has dropped

There is not much I can do, but am I stuck like this? Is it likely to start going back up? I am absolutely flapping right now

welly_59

It's gone down due to a mixture of a new account being added and an your indebtedness increasing. Give it a few months and you'll see it rise again.

Forget about the score for mortgage purposes, but of course some lender might see the car as having decreased your ability to pay

System

davida1992 wrote: »

I never live beyond what I can afford in terms of monthly payments etc, and I am careful in ensuring I can afford what I have.

Getting a car on PCP isn't really a good demonstration of that as being able to afford repayments isn't the same as being able to afford what you got unless you did it with the intention of getting the discount and repaying the PCP and balloon payment in full within 14 days.

I am due to apply for a mortgage very soon and I feel that this change is going to affect me dramatically, especially since my credit rating has dropped

The score change won't but the added debt will impact how much you can borrow and whether or not you pass an affordability test. Remember the affordability test stress tests your personal finances with a mortgage interest rate of 5 to 6%, not the low <1%-2% on offer.