Car finance for bad credit

Buying a car on finance is one of the most popular ways to get behind the wheel of a new car, but can you finance one if you have bad credit? Here’s all you need to know.

Good news! It’s possible to get car finance with bad credit. There’s no set minimum credit score for approval, but your options might be more limited. Financing a car with bad credit may also come with higher interest rates, but finding the right lender can help you secure a better deal. This guide will walk you through how to get the best deal with a poor credit score.

Can I get car finance with bad credit?

Yes, it’s possible to get car finance with poor credit, but you may find it harder to get approved, especially for larger loans or lower interest rates, as lenders may view you as a higher risk with bad credit.

Can I get car finance with no credit history?

Yes, but similar to someone with poor credit history, you may find it harder and more expensive. A lack of credit history can make it difficult for lenders to determine if you’re a reliable borrower who will repay the loan on time.

How to get car finance with bad credit

Your credit score is essentially your financial history. Lenders will use it to assess the risk of giving you credit, such as a car finance agreement.

Your score can be affected by things like missing loan payments, outstanding debts, being declared bankrupt, and making late payments on bills. You can check your credit score for free through several credit referencing agencies, such as Experian, Equifax, and TransUnion.

Buy Now, Pay Later (BNPL) options are becoming common with car finance providers, allowing you to split payments – but you need to consider how this may impact your credit score. And for those rebuilding credit, credit builder cards can help improve your score by making small purchases and paying them off on time.

If you have a low credit score, there are steps you can take to improve it. Below are some tips for improving your credit score:

Pay off your debts

The most obvious way to improve your credit score is to pay off any outstanding debts you have. It won’t wipe your credit history clean, but clearing as much debt as you can shows lenders that you’re making positive steps to improve it.

You also want to stay on top of your bills. Falling behind on payments for your phone contract and utility bills, for example, can have a big impact on your score.

Keep loan applications to a minimum

When you apply for a loan, the lender will perform what’s known as a ‘hard search’ on you, which stays on your credit record. Too many hard searches in a short period can hurt your score. To avoid this, use an eligibility checker (a soft search) offered by most lenders. These checkers allow you to assess your likelihood of approval without impacting your credit score.

Try a guarantor loan

Some lenders offer guarantor loans, which require someone to vouch for you and agree to repay the loan if you miss payments. This option can be helpful for those with poor credit, but you’ll need a willing and reliable person to act as a guarantor.

Increase your deposit

It may be easier to get a finance agreement if you increase your initial deposit. Most finance companies will ask for a deposit of around 10% of the car’s value. However, paying more upfront lowers the risk to the lender and can increase your chances of getting approved.

Where to get car finance with bad credit

The trickiest part of getting car finance when you have bad credit is finding a lender who will approve you. This is because they see you as a higher risk to lend to.
That said, there are still options for those with bad credit, you just need to choose which is right for you. Below are some of the places you could look at getting financed.

Through a car dealership

Most main dealers will offer finance in some form or another, usually Personal Contract Purchase or Hire Purchase. Dealers tend to have lower requirements for a finance agreement because you’re securing a loan against the car, so they can repossess it if you’re unable to keep up with the finance payments.

This lowers the risk to the lender, making it more likely that you’ll be approved. Just be wary of potentially higher interest rates on dealership finance, and make sure you can comfortably afford the monthly payments before signing on the dotted line. Remember, paying in cash is always an option.

Through a bank

A lot of banks offer car finance, and the interest rates may be lower than you’ll get from a dealership. The key is to shop around for the lowest rates, then use the company’s eligibility checker to see if you’ll be approved without a full application.

A bank may also be able to give you a personal loan to buy your next car. This would be secured against an asset such as the car or your house, so be extremely careful when going down this route and be sure you can make the payments.

What documents do I need for car finance?

To apply for a loan, you’ll typically need:

• • Proof of identity: Your passport or driving licence.
  • Proof of address: A recent utility bill or council tax statement. You may also need to provide your address history for the last three years.
  • Proof of income: At least three months of payslips or bank statements.
  • Deposit to put down upfront.

How does car finance affect your credit score?

This will depend on whether you keep up your payments or not. If you make every payment on time or early, this will help improve your credit score.
If you fall behind or stop making your payments, not only may your car be repossessed but your credit score will start to drop. You need to carefully consider your monthly budget and only borrow what you can afford to pay back.

Car finance for bad credit FAQs

Can I finance two cars with bad credit?

It’s usually harder to finance two cars with bad credit, but it’s not impossible. Lenders will consider your credit history, income, and debt-to-income ratio when deciding whether to approve you.

What is the best car to finance with bad credit?

For financing a car with bad credit, consider affordable, reliable, and practical models like the Dacia Sandero, Toyota Aygo X, or Hyundai i10, as they offer good value and may be easier to finance.

What is the lowest credit score to finance a car?

There’s no specific ‘lowest’ credit score for car financing, as lenders have different criteria. But you can still finance a car with a lower score, though it may come with a higher interest rate.

Car change? Carwow!

Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

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