For many of us, buying a new car means using some form of car finance. Does a poor credit ratingaffect the car finance options you're offered?

ClearScore is a credit broker, not a lender.

Car finance for bad credit

Car finance for bad credit refers to lending options specifically designed for people with low credit scores or poor credit history. These include secured loans, guarantor loans, hire purchase agreements, and non-status leases that offer alternative approval criteria beyond traditional credit scoring.

When it comes to car loans, your credit score(s) are like the British weather. It's going to come into the conversation at some stage. Lenders will check your credit report and score(s) to assess car finance applications, and the better your score is, the better your chances of getting a great deal.

Getting turned down for car loans for bad credit 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.

How do I know if I have a 'bad' credit score?

Typically this means you have relatively low credit score(s). Your credit scores are 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 'low' credit scores, 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. You can do this on ClearScore for free. There are lots of steps you can take that may help improve your credit scores, and boost your chances of being accepted for credit.

At ClearScore, we believe every credit score tells a unique story.

We don't label lower scores as "bad" because everyone's financial journey is different. Whether you're just starting to build credit or working to improve it, your score is simply where you are right now, not where you'll always be.

There is no ‘magic’ credit score that will guarantee that you get accepted for credit. Also, different lenders are looking for different things, so you might get refused credit by one lender and accepted by another.

Remember, your credit score is a useful indication of your creditworthiness, but lenders will look at other factors (such as your income and debt levels) before deciding whether to lend to you.

Here's how we show you your Equifax score at ClearScore:

Related reading: How to Improve Your Credit Score in 10 Steps

4 types of car finance for bad credit

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 may have options available even with imperfect credit history, subject to lender assessment and eligibility criteria.

Secured personal loan

A secured personal loan isn't specifically a car finance plan, but it can be a good option. Secured loans are backed 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 this may provide an alternative option for those who don't meet standard lending criteria, subject to lender assessment.

Non status lease

Some lenders offer car finance for bad credit through 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 can carry higher interest or fees relative to mainstream financing due to the lender taking greater credit risk, leading to higher monthly payments overall. 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

Will a bad credit score stop me getting car finance?

A lower credit score is likely to reduce the number of lenders willing to offer you finance, and the rates offered may be higher. Some lenders specialise in lending to people with poor credit histories, usually at higher interest rates.

Eligibility and acceptance are decided by each lender and depend on its own criteria and checks. Checking your eligibility does not guarantee that you'll be accepted.

Before signing, read the terms and conditions. Firms offering regulated car finance must be authorised by the FCA, and you can check a firm on the FCA's Financial Services Register.

Do I have to use the dealer's finance?

No. You can arrange finance elsewhere, for example a personal loan from a bank or building society, and use it to buy the car outright. Any loan still depends on the lender's credit checks.

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 may lower your credit score(s). 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.

At ClearScore, we work to find the right offers for you to help you finance your new or pre-loved car. We compare specialist car finance deals from across the market and show you offers tailored to your credit score and financial situation, so you can secure the right deal for you. We show indicative rates and pre-approved offers, meaning the rate you see on ClearScore is the rate you'll get (subject to additional lender checks). And we always use soft searches, so browsing your offers never harms your credit score.

Frequently asked questions about car finance with bad credit

Yes, car loan bad credit approval is possible through secured loans, guarantor loans, hire purchase agreements, and non-status leases that focus on your current circumstances rather than just your credit history.

While requirements vary by lender, those with poor credit can still access car finance through specialist products designed for lower credit scores.

Buying a car with bad credit typically involves higher interest rates and may require security, a guarantor, or choosing hire purchase options where the car acts as collateral.

Ready to compare car loans for bad credit? Browse car finance offers on ClearScore. ClearScore is a credit broker, not a lender.