How to get car finance with bad credit

Yes, you can still get car loans even with bad credit, but if your credit history is poor or limited, you may find it more difficult to get better deals on car finance plans. You might have to pay higher interest than someone with a stronger credit history, for example. But there are still plenty of options available if your credit score isn't up to scratch.

Our advisers can help you go through your options, and while applying for loans or credit cards can often leave a mark on your credit report, our soft search tool means you can see whether or not you're eligible while leaving your record intact.

If you have a bad credit score, there are several car finance options available to you:

Personal Contract Purchase (PCP): With PCP, you pay an initial deposit followed by monthly payments. At the end of the term, you have three choices: make a final balloon payment to own the car, return the car, or trade it in for a new PCP deal. This option often provides lower monthly payments and flexibility at the end of the contract.

Hire Purchase (HP): HP involves paying a deposit and then making fixed monthly payments. Once all payments are completed, you own the car outright. HP typically has no mileage restrictions and can be a straightforward way to finance a vehicle over a set period.

Car Loan: An unsecured personal loan allows you to borrow the full amount needed to buy a car outright, which you then repay in monthly instalments. This option means you own the car from the start and there are no additional fees beyond the interest on the loan.

We've established that it's important to maintain good credit - but what actually is your credit score?

Your credit score (or more accurately, your credit report) is essentially like your financial footprint. It's a record of your financial history that lenders use to assess how safe you are to give credit to. It is affected by several factors: if you have missed loan payments 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 expensive.

1. Identify and address problem areas in your credit report

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 important when you are applying for a car finance deal. 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. 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.

Our soft search eligibility checker allows you to see what car finance options you could apply for without affecting your credit score. Just enter your details and submit a no commitment application for quotes using the button at the top of the page.

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 and find a loan that suits your needs and financial means.