If you have bad credit, it can be difficult to purchase a car. But don’t worry, you’re not alone and you can finance a car with bad credit. You’re in the right place to find answers to some of the most asked questions and tips on how to improve your credit score.
Table of Contents
Can I get car finance with bad credit?
A lot of people have bad credit for a variety of reasons. Perhaps you had some financial difficulties in the past. Maybe you haven’t had time to build up your credit history. No matter what the reason, your bad credit shouldn’t stop you from getting the car you need. You can get car finance if you have bad credit.
There are specialist lenders who’ll give you a loan to buy a car. There are different forms of finance you could get – but we’ll go through these later. The main point here is that you don’t have to have a perfect credit score to get finance on a car.
What is considered a bad credit score?
A bad credit score is usually one that falls below about 500. Depending on which Credit Reference Agency (CRA) you check with, what’s classed as a poor score is slightly different.
In the table below, we show you the difference between excellent and poor credit scores. This is based on the three main CRAs in the UK, which are Experian, Equifax, and TransUnion.
| Credit Score Range | Very Poor/Poor | Fair | Good/Very Good | Excellent |
|---|---|---|---|---|
| Experian | 0-720 | 721-880 | 881-960 | 961-999 |
| Equifax | 0-438 | 439-530 | 531-810 | 811-1,000 |
| TransUnion | 0-565 | 566-603 | 604-627 | 628-710 |
As seen above, the lowest scores are classed as very poor, and this is where you’ll find it harder to get a loan. But it’s not impossible. There are some lenders who will still consider lending to people very poor credit score. You’ll need to check the terms though as the interest rates and charges may be higher.
How does bad credit affect car finance?
Bad credit affects car finance in the following ways.
- It limits the number of lenders who’ll give you finance. This is because a lot of mainstream lenders prefer customers who have good credit scores.
- You’ll be offered higher rates of interest. This will make the cost of borrowing the money higher.
- You may have extra fees to pay. This is often the case not just with the lender but also when you take out a loan through a broker. The broker may charge you a fee so make sure you read all the terms before you apply.
How can I apply for car finance with bad credit?
There are four steps to follow if you want to apply for car finance with bad credit.
1. Work out how much you have to pay for the car you want
Decide on what sort of car you need. There’s no point in getting into debt buying a big or expensive car if you only need it to drive yourself into work. But if you have a growing family and need more seats, a big boot then looks into cheaper vehicles that will still suit your needs.
2. Complete the application form to get the car finance
If you’re not sure which lender to go with, find out which ones you’re eligible to apply with first. You can do this by entering your details with a broker or by looking at lender websites. Make sure the car you want complies with the lender’s car financing terms.
Remember reputable lenders will do a credit check when you submit your full application.
3. Get approved
To get approved, the lender may ask for extra information from you. For example, they might ask to see the following documents.
- Payslips
- Bank statements
- Your driving licence
Be willing to provide whatever information the lender asks for to help get approved.
4. Buy your car
This is where you get the money to buy the car you want. You’ll also be aware of the terms of your finance agreement, so make sure you stick to them.
What are my options for car finance if I have bad credit?
There are different types of car finance available even with bad credit. We explain some options for you here.
1. Personal Loans
With a personal loan, you don’t need to secure it against the car, and you don’t need to pay a deposit. You can apply for a personal loan direct with the lender or through a broker. Once you know how much money you need, you apply for that amount. If you’re approved, the money will be in your bank account for you to buy the car.
Having bad credit will mean you’ll have to use lenders who offer loans for people with bad credit.
| The pros of a personal loan | The cons of a personal loan |
| You don’t have to say what you need the money for. | You’ll be limited with your choice of lenders if you’ve got bad credit. |
| There are no restrictions on the car you buy. You get to choose the age of the car and the mileage you’ll do. | The interest rate will be higher than on a standard personal loan. |
| You own the car while you’re paying back the loan, not the finance company. | If you sell the car, before the loan expires, you’ll still have to pay back the loan. |
2. Hire Purchase
Hire purchase (HP) lets you borrow money against the car you want to buy. The way this works is that you have to pay a deposit first. Then you pay the remaining cost of the car to the HP company with fixed payments each month. This continues over a set period and at the end you get to own the car.
| The pros of hire purchase | The cons of hire purchase |
| If you decide you no longer want to keep paying for the car, you can walk away from the agreement. Halfway through your payment term you can hand over the car and stop paying. This will end the agreement. | You don’t own the car until the final repayment is made. |
| As the HP company own the car until it’s paid off, you can go to them if you have problems. For example, let’s say the car you buy is faulty and the dealer won’t repair it. You can ask the HP company to resolve it. | The finance company will take the car away if you can’t keep up the repayments. |
| You might have to make an additional final payment if you want to own the car when the payments end. |
3. Guarantor Loans
Guarantor loans are similar to personal loans. The main difference is that with a guarantor loan, you need someone with good credit to take it out with you. The guarantor is responsible for paying back the debt if you’re unable to.
| The pros of guarantor loans | The cons of guarantor loans |
| They’re easier to get approved for if you’ve got bad credit. | If you get rid of the car, you’ll still have to pay off your loan. |
| By having someone else to guarantee the repayments, you may be able to borrow a higher amount | If you’re unable to pay, it could put a strain on the relationship you have with the guarantor. |
| The loan isn’t linked to the car, so you have no restrictions on which car you buy or what mileage you do |
4. Personal Contract Hire (PCH)
Personal contract hire is also known as car leasing. It works like a long term rental. After paying a deposit, you pay a fixed amount each month over a set period. At the end of the period, you give the car back to the finance company.
| The pros of personal contract hire | The cons of personal contract hire |
| The repayments tend to be lowered each month. | You don’t own the car, you only have it on hire for the term of the lease. There’s no option to buy the car at the end of the lease. |
| You can buy a newer car because you’re not paying to purchase it and the payments are less. | You’ll have restrictions on how much mileage you can do each year. If you go over this amount, you’ll have extra charges to pay. |
| You can replace the car for a new one every few years. | You need to make sure you look after the car. If you don’t hand it back in good condition, you’ll be charged for any repairs. |
| The car will be repossessed if you stop paying. |
5. Personal Contract Purchase (PCP)
A personal contract purchase lets you pay monthly for your car, after putting down a deposit. The way it works is that the PCP company puts a value on what the car will be worth at the end of the agreement. They then work out the difference between what the end value of the car will be and its current value. This difference between these two values is what you pay back, with interest of course.
With a PCP you have the option to own the car. You can do this by paying an additional lump sum at the end of the agreement. This is sometimes called a balloon payment.
| The pros of personal contract purchase | The cons of personal contract purchase |
| The repayments tend to be lowered each month. | You don’t own the car unless you pay the balloon payment at the end of the contract. |
| You can buy a newer car and can replace it every few years. | If you choose not to buy the car at the end it could end up costing you more than a personal contract hire. |
| If you hand the car back at the end of the contract, it won’t matter how much it’s depreciated in that time. | You have limits on how much mileage you can do each year. If you go over this, you’ll have to pay a fee for every mile that’s over your limit. |
| You need to make sure you look after the car. If you don’t hand it back in good condition, you’ll be charged for any repairs. And you’ll be charged for any miles you do over the agreed mileage limit. |
What should I consider when buying a car with bad credit finance?
There are things you should think about when buying a car using finance for bad credit. The following tips will help.
1. Compare lenders and loan options.
Do your homework and look at what car finance options you have. Choose the one that’s most affordable for you and that suits your situation the best.
Once you know what type of finance you want, shop around to get the best deal. There are a lot of lenders and brokers to choose from. Find out which ones offer finance for bad credit. And check the interest rates and fees each lender charges before you apply.
2. Find out what the lenders requirements are.
Some lenders will have conditions which you have to agree to if you want to get the finance. For example, some lenders will state that the car must be less than 10 years old when you buy it. That’s why you need to check before you start searching for a car.
3. Make sure you buy your car from a reputable car dealership.
The last thing you want is to buy a car that hasn’t had the proper checks done and then it breaks down. It could end up costing you a lot of money to repair that you may not have.
4. Consider buying a newer car with lower mileage.
Yes, a newer car with low mileage will cost more, but you’ll save money in maintenance and running costs. Having a car that’s reliable will save you money in the long run.
Can I get car finance for bad credit without credit check?
The short answer to this question is no. Lenders in the UK who are registered with the Financial Conduct Authority (FCA) must follow their rules. This means that when you apply for a loan, the lender must carry out a credit check. It’s part of the process of checking that you’re not over committing yourself to too much debt.
What does a car finance company see when they run a credit check on me?
When a car finance company runs a credit check on you, they’ll see information that’s held on your credit file. Your credit file is recorded with the three CRAs mentioned above. They’re Experian, Equifax, and TransUnion.
You can see that information just by getting a full credit report from each of the CRAs. It’s how you can check your own credit report. You’re entitled to one full credit report for free every 12 months from the CRAs. If you want to see what’s on your credit file more often than this, then you’ll have to pay a fee.
There are credit monitoring services in the UK who’ll give you information on your credit score for free. These services include:
Although these credit monitoring services will give you your credit score for free, you won’t get a full credit report. As with the CRAs, you’ll have to pay to get a full credit report.
Is car finance bad for my credit score?
When you take out car finance it will affect your credit score in two ways.
1. A hard credit check will be done when you apply for car finance.
A hard credit check will be done when the finance company looks at your credit file. They’ll check the information on there to help them make their decision about your application.
When they do a hard credit check, it’ll have a temporary impact on your credit score. It will bring your score down by a few points. It also means other lenders will be able to see that you’ve applied for finance. But it won’t stay on your credit file for more than 12 months.
2. How you maintain your repayments will affect your credit score.
If you’re approved for car finance, your credit score will improve if you keep on top of your repayments. Keeping up to date with your repayments will help improve your credit score.
If you miss any payments, or you’re late paying them, this will show on your credit file. It’ll have a big impact on your credit score and will bring it down.
This is why you should do your research before taking out any finance. Firstly, so that you can apply with a lender who’s more likely to approve your loan application. Secondly, to make sure you can afford the repayments and help improve your credit score.
How can I quickly improve my credit score?
There are steps you can take that can quickly improve your credit score. Here are some tips you could try.
1. Register on the electoral roll
Being registered on the electoral roll helps the lender verify who you are. Not being on there reduces your credit score. So, if you’re not already registered, it’s worth doing as it’ll give your credit score a quick boost.
2. Remove links to anyone you’re no longer connected to financially
Have you ever taken out loans or had bank accounts with someone in the past but are no longer with? If so, get the connection with them removed from your credit file. If they’ve got bad credit, it’ll affect you when you apply for credit.
3. Don’t use up all your available credit
Keep your borrowing to around 30% of your credit limit. Lenders like to see this as it signals to them that you can manage your money well. If you’ve borrowed money up to your credit limit, try and bring it down before you apply for finance.
4. Check your credit report
Check for errors. You’ll be surprised at what a difference a mistake can make on your credit file. Maybe a lender has entered that you were late making a payment when you weren’t. Maybe your personal details are wrong. If you spot any mistakes, get them put right by contacting the credit reference agency (CRA).
There are three main CRAs in the UK you’d have to check your credit file with.
5. Monitor your credit file
Once you’ve checked that everything on your credit file is correct, keep an eye on it. If anything changes, make sure it’s changed because of something you’ve done and not by mistake.
There are credit monitoring services that will alert you if anything changes on your credit file. They’re free to sign up to and can be helpful at giving you tips on how to improve your credit score.
6. Make payments on time
Every time you’re late making a payment, it brings down your credit score. A good way to overcome this is by setting up a direct debit. If you make sure your payments go out on the day your salary goes in, you’re less likely to miss them.
7. Don’t make lots of new applications close together
When you apply for a lot of loans over a few of weeks, it makes you look desperate for money. This can have a negative impact on your credit score.
Applications won’t stay on your credit file for more than 12 months. The longer the gap between any applications you make, the less impact it has on your score.
FAQs – Bad Credit Car Finance
Can I get car finance with very poor credit?
Yes, you can. The car finance company has the car as an asset to secure the loan against. If you stop paying, they can recover their money by selling the car. This makes them more willing to consider approving finance to people with bad credit. But you need to be aware that the interest rates will be higher.
Can I finance a car for someone else?
No, you can’t. You can only buy a car on finance for yourself. If you take out car finance but then give the car to someone else, it’s called fronting. This is illegal in the UK.
If you want to help someone to buy a car, say your partner or child, the options you have are as follows.
You can give them the money to make the repayments themselves but let them take out the finance in their name.
You can take out a loan and give the money to them to pay for the car. You’d then be responsible for the loan repayments.
You can be a guarantor on the car finance agreement they take out. But you’d be responsible for the payments if they stop paying.
How quickly can I get a car with poor credit?
You can get car finance with poor credit quite quickly. If you have all the paperwork that the lender requires, you could get approved the same day. The key is to do your homework before you apply. Make sure you’re eligible with the lenders you’re applying with first. This will improve your chance of being approved fast.
Disclaimer: We are not providing financial advice. These are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked here, they are provided for reference only.