Can I Get a Car on Finance with Bad Credit? What You Need to Know

Are you scratching your head wondering how to get car finance with bad credit? We’ve got the answers in this guide and have explained more about car finance and the other options you have for financing a new car purchase.

There are nearly 39 million licensed cars on our roads, which shows just how important vehicles are for us here in the UK. Without our beloved motors many of us would struggle to get to work, get the kids to school or simply get from A to B.

That being said, buying cars – particularly brand-new ones – can often be expensive and difficult to afford outright, which is why we have so many different car finance payment options.

However, you might also be under the impression that having poor or bad credit can stop you getting approved for things like car finance. So to help clear things up for you, we’ve put together this guide that addresses a number of popular questions and key considerations on this subject.

What is car finance?

Before we explain how to get a car on finance with bad credit, it’s important to get a clearer understanding of exactly what car finance is, how it works and why it’s a popular option for those looking to invest in a new vehicle.

Simply put, car finance is a way for you to pay for a car across a period of time. This will often involve some form of loan and repayment arrangement with a lender or provider. It’s also incredibly popular in the UK and over 90% of new private cars bought last year were subject to some form of car finance deal – according to data from the Finance and Leasing Association.

What are my options with car finance?

There are a number of car finance options available to us. If you’re buying from a dealer you may well be offered these options:

Hire purchase (HP) – typically this will see you pay a deposit (10% of the car’s value) and you’ll then pay the remaining value of the car off in monthly instalments on a period agreed with the lender. However, the loan is secured against the car, which means you won’t actually own it until you’ve made your last payment.
Personal contract purchase (PCP) – with this option you’ll pay a deposit and then monthly instalments over a fixed term. When this period finishes you then get the option to return the car, pay a final ‘balloon payment’ lump sum, or sell the car to pay the outstanding balance.
Personal leasing (contract hire) – this is similar to PCP and will see you pay monthly instalments over an agreed payment period. As the name suggests though, you don’t get the option to purchase the vehicle when this period ends, you are only really leasing the car and have to return it.
Low % finance deals – these are sometimes found on older, used vehicles that dealerships are struggling to sell. More often than not though, you’ll be expected to pay quite a large deposit.

What are the benefits of car finance?

Along with giving you more opportunities to invest in the car you really want, without having to pay a large sum up front, there are other benefits to choosing car finance, these include:

Being able to spread repayments.
It’s not as big a strain on your finances.
A wider variety of cars can become available to you.
Making repayments is good for your credit history.

Can I get a car on finance with bad credit?

The short answer to this is that having bad credit can affect your eligibility for car finance with some lenders and can limit your access to certain options and favourable interest rates – but you can still get a car on finance with a poor credit history.

What tends to happen with car finance is that the dealership will put you through an application process on whatever option you’d prefer to help you with your purchase. This process will then determine how eligible you are in their view for you chosen car finance product.

How to get car finance with bad credit

You can look to negotiate with lenders and dealerships to try and get better interest rates. It might be that you need to do wider research and shop around the markets to see what different dealers are preparing to offer. Being armed with this information may give you the upper hand to secure the best deal at a later stage.

Beyond this, trying to improve your bad credit rating will also help make it easier for you to access better rates and car finance options. Here are a number of approaches you can take to get a better credit score:

Check your credit report

It might be that your credit file has a few errors on it that might make it harder for lenders to assess your eligibility. So request your full credit history, get it checked and amend any mistakes.

Register to vote

In a similar vein, you should also see if you’re registered to vote at your current address. This again makes it easier for lenders to verify you when they’re running their checks.

Consistently make repayments

By making sure you keep up with any repayments on everything from your bills to any previous loans, as this is a great way to show a car finance provider that you’re trustworthy when it comes to getting credit from them. An added benefit of this is that it’s one of the best ways to improve your credit score in the long run.

Make a bigger deposit

As mentioned before, for car finance products such as hire purchase, you’re likely to be required to make a 10% deposit. However, if you can increase your deposit and reduce the amount you need to pay back, it can reduce the risk in the lender’s eyes and improve your likelihood for approval.

Avoid making multiple finance applications

If you initially get rejected for car finance, avoid then making lots more applications in quick succession as each of these will be recorded on your credit file and will likely cause your credit score to go down even more. Lots of applications will also reflect badly on you as it essentially shows potential lenders that you’re not particularly creditworthy.

Not all lenders will carry out a full credit check though. Some will instead offer an initial ‘soft credit check’ that won’t appear on your record. As such it can be worth asking about this first when you begin discussions with a dealership so you know when to stop the application process before a full check gets done.

Alternative options for getting your new car

If you have concerns that your bad credit is going to be too much of an issue when trying to secure car finance, you might want to look into these approaches instead:

Head to the used markets

While having a new, or nearly new car is advantageous and preferable for many UK car buyers, if you have bad credit it could be a wise move to focus purely on older used vehicles.

The main reason for this is that second-hand cars are obviously much more affordable and can reduce the amount you may need to pay on finance. What’s more, if a dealership has a large amount of stock they may be more amenable to offering you better finance rates, as they’ll want to get these vehicles shifted from their forecourt.

This doesn’t mean you should buy any old used car though. It’s a good idea to properly do your research and give the car a thorough check over before you start to discuss any purchases. This used car buying checklist from the RAC can tell you more about what you should be looking out for when shopping around.

Independently apply for a personal loan

You can also secure your own car finance independently in the form of a personal loan. It’s becoming more and more common for lenders to have specific loans tailored to those looking to buy a vehicle and some providers now also consider individual circumstances, rather than simply rejecting people purely on their bad credit history.

This is the approach we take here at Simple Fast Loans and we have 18-month personal loans available with no set up fees that could be the solution you need to finance a new car when you have bad credit. Our personal loans can also be available to people with bad credit for a variety of other financial requirements, as we treat each case on its own merit. Follow the link above to find out more.