Can I get car finance with bad credit?

Whenever you apply for credit, be it for a car finance agreement or a new credit card, your credit history is checked and lenders assess it when deciding whether to lend you money or not.

For those with a poor credit history, it can be hard to find lenders that are willing to give you money as they believe there is a higher risk that you won’t pay it back.

With car finance if you have a bad credit history, it’ll be harder to get a new contract and if you are approved for one it is likely to be expensive. However, it’s not impossible and it’s worth looking at the options and weighing up the costs before you make a decision.

Here we look at everything you need to know about bad credit car finance, from possible options, to how to improve your chances of getting a new car finance contract and what lenders will be looking for.

Can I get car finance with bad credit?

You can get a car finance agreement with bad credit, although your options will be limited. You may not be eligible for car finance from some lenders and, if you are approved, the car finance is likely to cost you more than it would for someone with a better credit score.

There are lots of car finance lenders on the market but if you have a poor credit history you may not be able to use a mainstream lender. However, there are a number of specialist lenders that offer finance specifically for people with less-than-perfect credit scores, including those with an IVA (Individual Voluntary Arrangement) or even a CCJ (County Court Judgement).

What are my car finance options if I have bad credit?

If you don’t have the money upfront to buy a new or used car, then buying one with a car finance agreement is an option. You’ll usually be required to pay a deposit upfront and then a monthly amount for a fixed period of time.

The two main types of car finance are the following:

• Hire purchase (HP)

When you take out the car finance agreement, you’ll usually have to pay a deposit and then you’ll make monthly payments towards the cost of the car. At the end of a fixed period, after paying a small option to purchase fee you’ll own the car outright..

• Personal contract purchase (PCP)

PCP works in a similar way to HP although your overall monthly payments are usually lower and, at the end of the fixed-term, you’ll be given the option of paying a larger lump sum to own the car, returning it, or swapping it for a new model and finance agreement.

If you have a poor credit score, you may still be eligible for car finance from a standard lender. However, this will depend on other areas of your application, particularly your income and affordability.

» COMPARE: Find out which car finance deals you qualify for

Even if you don’t qualify for a standard car finance agreement, there’s no need to give up hope! There are other options designed to help people with bad credit access finance, including:

Specialist lenders

There are a number of specialist lenders who will arrange credit for those with poor credit scores. Before you agree to anything make sure you’ve fully understood all the costs involved as these can be more expensive than car finance deals from standard lenders.

Guarantor car finance

Guarantor car finance can help those who have a poor credit history, or those who haven’t been able to build up their credit scores. They involve another person, often a friend or family member, also signing the loan contract and agreeing to make the repayments if you’re not able to, which minimises some of the risk for the lender. These can be a good option for some but aren’t to be entered into lightly.

» MORE: How does guarantor car finance work?

Personal loan

If you are able to take out a personal loan, this could be used to cover the cost of a new car. However, if you’ve got a poor credit score, an unsecured personal loan could come with higher interest rates than car finance as the loan isn’t secured against the car.

» COMPARE: Loan options if you have bad credit

Pay-as-you-go car finance

If you struggle to get accepted for standard car finance, it may be possible to get pay-as-you-go, or black box, car finance. This works in a similar way to a traditional hire purchase agreement as you will pay a deposit and make monthly payments until you own the car. The difference is that a black box will be fitted in your car to remind you to make payments each month.

Should you miss a payment, the lender could immobilise your car to stop you from driving it until you’ve paid. Even though this type of finance is sometimes described as pay as you go. You cannot simply stop making repayments, as this can lead to late charges and harm your credit score.

How can I improve my chances of getting car finance with bad credit?

Ultimately it’s a lender’s decision whether to give you car finance and at what price. While credit scores are an important part of a lender’s car finance checks, and can determine whether you will be approved for finance and at what rates, your income is also just as significant.

Your income and expenditure will show the lender if you’re able to make the monthly repayments. The lender will also look at what other outgoings you have to see how much spare income you have, to check if you’d be able to carry on making the car repayments if your income were to drop.

Even if you have a poor credit score, having a regular income that can comfortably cover monthly loan repayments will improve your chances of getting accepted for car finance.

Choosing a cheaper, used car to finance may also help you to get finance as you would need to borrow a smaller amount.

Paying a bigger deposit could improve your chances of being approved for the contract too. The bigger the initial deposit, the less you would need to borrow and the better your chances of getting accepted for car finance as you would be a smaller risk for the lender.

Of course, the other way to improve your chances of getting car finance, which will take longer but may not cost you as much, is by working on your credit score.

It’s free to check your credit score and it’s something you should do on a regular basis. You’ll be able to see your entire credit history - such as credit card agreements, or car finance applications. It’s also the place where marks will appear if you miss repayments on credit agreements.

Some things you can do to build up your credit score include:

• Paying bills and other loan payments on time
• Minimising and spreading out applications for credit
• Registering to vote

» MORE: Ways to improve your credit score

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