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How to Get Car Finance with Bad Credit

When you apply for a car finance deal, your lender will carry out credit checks to see if you are eligible for a loan. Having a low credit score can reduce your chances of being able to secure car finance, but there are a few simple things you can do to improve your chances.

Don’t get forced into a contract with a high-interest rate - we can help you find a car finance deal that works for you. To find the most competitive rates on the market, compare car finance deals with Money Expert to find a loan that suits your needs and financial means.

In this guide:

What is a credit score?

The most important thing you can do is keep on top of your credit score. Your credit score is affected by several factors. If you have missed payments on credit in the past, been declared bankrupt or have made late payments on your bills, your credit history will have been negatively impacted.

You can check your credit score with any credit referencing agency, usually for free. Having a low credit score doesn’t completely ruin your chances of getting your dream car, but it can make it more difficult.

How can I improve my chances of getting car finance?

1. Boost your credit rating

Although this may take time, having a good credit score will greatly improve your chances of securing a car finance deal. It shows your lender that you can manage your money and you can be depended on to make repayments on time.

Get hold of your full credit history. This way, you can re-evaluate how you have handled your money in the past and have a look at any factors you might be able to improve. Make sure there are no mistakes on your credit profile and check it is up to date. Then, get started on making repayments on your current credit, as soon as you can.

2. Register to vote

Your prospective lender will carry out a credit check on you and they need to check your name and address. If you are on the electoral roll, they can get your details from here and this may work in your favour.

3. Always make your current repayments on time

If you have any current debt that you are in the process of paying off, it is essential that you keep up with repayments. This tells your new car finance lender that you can be trusted to pay back your credit on time each month and therefore, you are more likely to secure a competitive car finance deal. It will also improve your credit score over time.

Budgeting is so important when you are applying for a car finance deal. Avoid getting into any more debt whilst you are applying. Keep on top of your finances by evaluating your current spending - see what you can cut down on and put towards repaying your current credit.

4. Increase your initial deposit

Most car finance deals will require you to pay a deposit. If you have an excellent credit score, then it is likely this will be around 10%. However, increasing the deposit value will strengthen the deal. It shows to your lender that you can afford to pay a bit more and you are more likely to make repayments on time.

5. Avoid links with people who have bad credit

People you have been financially linked to in the past who have now got bad credit may be lowering your credit score even more. For example, if you have an old joint account or you shared a mortgage with someone you know has bad credit, it is a good idea to issue a notice of disassociation. This means you will be no longer be financially linked to them.

6. Try a guarantor loan

If you have been struggling to secure a competitive loan with a poor credit score, ask someone to act as your guarantor. If at any point you cannot make the repayment, then the debt will go to them - so it needs to be someone who trusts you.

With this type of loan, there is much less risk for the lender so they are more likely to offer you a fairer interest rate on your car finance deal. Your guarantor needs to be someone in a stable financial situation so that they have the ability to pay back the credit if necessary. But you should make sure that you can pay back the money yourself so you don’t have to put your guarantor in this position.

7. Consider other types of loans

A hire purchase loan may be ideal for you. With this type of loan your car will be owned by the finance company, so they can take the car away if you miss a repayment. This means that there is less risk for the lender so you are more likely to secure the deal.

8. Don’t apply for too many loans

The lender can assume from this that you are struggling to cope financially. The more loan applications you make, the more your credit score is likely to decrease.

Whilst you are considering applying for a loan, simply carry out the eligibility check for each one to find out which car finance deal will suit you best. To avoid the applications negatively impacting your credit profile, avoid formally applying until you have definitely decided which lender you are going to apply to.