7 min read

How to get car finance with 'bad' credit

Hannah Patnick
18 September 2017

Want to buy a car on credit but have a less than ideal credit history? Here’s what you can do.

When it comes to car finance, your credit score is like the British weather. It's going to come into the conversation at some stage. You'll need a credit score to get car finance, and the better your score is, the better your chances of getting a great deal.

Getting turned down for car finance because of your credit history can be discouraging. But while having 'bad' credit can indeed be a challenge, it doesn’t have to spell out the end of your four-wheeled dream.

What does 'bad' credit mean?

Typically this means you have a relatively low credit score. Your credit score is calculated using your credit report. It's a way of measuring how much of a risk you might pose to a lender.

If you have a 'low' credit score, you might find it harder to be accepted for credit. This is because a low credit score suggests that you may have had trouble repaying your debts in the past. In the eyes of a lender, this means there's a higher chance that you also won't repay any future debt.

You could also have a 'low' credit score if you’ve never borrowed before. If you have very little history with credit, lenders won't have much to base their decision on. They have no way of knowing if you're a reliable borrower or not, so they'll usually err on the side of caution. You may also find it tricky to get credit in this situation.

If either of these scenarios sound familiar, it's worth checking your credit report and score. There are lots of steps you can take that will help improve your credit score, and boost your chances of being accepted for credit.

But building up a good score takes time, which may be an issue if you can’t wait to get behind the wheel. So what can you do in this case?

Discover your credit score and report with ClearScore. For free, forever.

Car finance for 'bad' credit: what are your options?

If you’re struggling to get car finance because of your credit history, there are other ways to spread the cost of your new wheels. These options tend to lower the risk for your lender, so you’re more likely to be accepted even if your credit history isn’t perfect.

Secured personal loan

A secured personal loan isn’t specifically a car finance plan, but it can be a good option. Secured loans are guaranteed by something valuable you own. However, your lender has a right to take your security away if you miss repayments. Once you have the loan you can use the money to buy the car you want outright.

Guarantor loan

With a guarantor loan, a relative or friend co-signs the loan. If you miss a payment, or can't repay the loan, your guarantor will have to foot the bill. The guarantor will also need to get credit-checked. And they may be asked to put up something valuable they own — such as a piece of jewellery or an investment — as security.

Hire purchase agreement

In a hire purchase agreement, you hire the car from your lender while paying the purchase price off in full in monthly instalments. After that, you own the car.

Because the car is your lender’s property during the contract, they can take it away if you miss any payments. This makes it a bit less risky for lenders, so you may have a higher chance of getting accepted than you would with other car finance options.

Non status lease

Some lenders and car dealerships offer non status leases. These are designed specifically for those with 'bad' credit. They’re called 'non status' because your credit history isn’t the main factor in your application. Instead, the lender will look at your circumstances as a whole.

Non status leases are riskier for your lender, so your monthly payments can be expensive. You also won’t own the car outright. At the end of the term you can:

  • give the car back and walk away
  • get a new car
  • pay a pre-agreed lump sum and own the car outright

Struggling to keep up with hire-purchase or lease repayments?
You can legally walk away without damaging your credit score by paying 50% of your total debt and giving the car back (as long as it’s in a good condition).

How to apply for car finance with 'bad' credit

Always avoid making several applications in a short time-frame. When you apply for credit, lenders will check your credit report. This is known as a 'hard search' and it gets recorded on your report. These searches leave marks on your credit report and tend to cause it to drop. Lots of searches in a short space of time can make it seem like you are desperate for credit, which can damage your score even further.

Before you apply, speak to lenders informally to see what your options are. Different lenders have different criteria for who they will give credit to. Where you may be rejected by one lender, you could be accepted by another so it pays to ask around.

You should also check your eligibility for a loan before applying. This lets you see how likely it is that you'll be accepted for the loan or financing option before applying. Eligibility checks use soft searches which don't affect your credit score. You can do this for free by logging in to your ClearScore account.

Then all that's left is to choose your car and agree the deal.

In a nutshell:
  • Your credit report and score can give you a good idea of what your chances of getting accepted for car finance are. Make sure you check them before applying to know where you stand.

  • Some finance options are less risky for your lender, so you have a greater chance of getting accepted even if you have 'bad' credit.

  • Avoid making several applications in a short time-frame. Before you apply, speak to lenders informally and use an eligibility checker like the one in your ClearScore account.

  • It’s never too late to start improving your credit score. Even if you need a car urgently, improving your score can have a lot of money-saving benefits.

by Hannah Patnick

In her previous life Hannah was a consumer journalist making primetime television shows. Now she's ClearScore's Content Producer. Amongst her many talents, Hannah is famed for her excellent tea-making skills.

ClearScore exists to make your finances simple.
We offer a free service where you can handle everything to do with credit in one place. In your ClearScore account, you can see your credit score and the full details of your credit report. Your credit cards, mortgages, mobile phone contracts, loans, overdrafts and utilities all on the record. Our goal is to make ClearScore as simple, calm and straightforward as possible. Money is stressful enough.