Can I get car finance with bad credit?

For most of us, buying a new car will mean agreeing some sort of car finance arrangement, but does a poor credit rating affect your chances of getting a good deal?

Here, we take a look at the facts, and offer advice on what to do if you need to upgrade your car but are worried about your credit rating letting you down.

What is a credit rating?

If you’ve ever borrowed money or bought something on credit – for instance, a mobile phone, TV or washing machine, then you’ll have a credit history. This information is used to work out your ability to pay back what you owe – the result is your credit rating (also known as a credit score).

The organisations that keep a record of your credit history are known as credit reference agencies (CRAs), there are three CRAs in the UK – Experian, Equifax, and TransUnion.

Each CRA works to its own scale, but your credit rating is typically expressed as a three-digit number that falls into one of several categories ranging from very poor to excellent.

What is a bad credit score in the UK?

What’s considered a bad credit score depends on the specific CRA:

Experian

Equifax

TransUnion

How does bad credit affect car financing?

A poor credit rating suggests you’ve been unreliable about paying back money that you owe. As a result, lenders are likely to be more reluctant to offer you car financing or if they. It often means you’ll pay higher than average interest rates to cover the risk of non-payment (defaulting).

Remember that bad credit doesn’t just affect car financing deals, it can have an impact on any credit agreement you apply for.

What car financing options are there?

Most dealerships work with credit lenders to give customers a choice of finance deal. Typical agreements include:

Personal contract purchase (PCP)

Under these agreements, you pay a deposit followed by fixed monthly repayments over an agreed period of time (usually three years). At the end of the contract, you can buy the car by making a large final payment, use the value of the car to put towards a new PCP deal or simply hand the car back and walk away.

PCP contracts will usually have certain conditions, for example, if you exceed a certain number of miles by the end of your contract term, you may have to pay a penalty.

Hire purchase

This is a more traditional credit agreement where you pay a deposit and make monthly repayments for an agreed length of time. When you pay the final instalment, you’ll then own the car outright.

Hire purchase contracts don’t usually have any mileage restrictions.

Do I have to finance a new car with the dealership?

You don’t have to agree to a finance deal offered by the car dealership, and you might find better interest rates elsewhere. For example, you could take out a personal loan which would enable you to buy the car outright. You’ll then pay back the loan each month.

Will a bad credit score stop me getting car finance?

A bad credit score is likely to limit your car financing options. Some lenders might reject your application altogether or you may find yourself facing higher interest rates. Nevertheless, there are a number of platforms and credit lenders who specialise in car financing for drivers with poor credit.

Needless to say, when you find a car finance deal, don’t forget to check the terms and conditions of your loan. Any firm that lends you money must also be authorised by the Financial Conduct Authority (FCA).

Can I get car finance with a CCJ?

A County Court Judgement (CCJ) is a court order that requires you to pay back money you owe. If you’ve been issued with a CCJ, you could find it trickier to arrange car finance with a mainstream lender but a specialist should have options available to you.

How can I get a better car finance deal?

When it comes to getting a better deal on your car finance package, there’s no real quick fix. Ultimately, the lowest interest rates are reserved for those with good and excellent credit scores.

That said, there are some simple and practical things you can do to improve your credit score in the short to medium term: