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Car finance can help you spread the cost of buying or leasing a vehicle. As with any type of loan, lenders will look at your credit history when you apply. So what happens if your credit history isn’t in the best shape? Here we explain how bad credit can affect your chances of getting approved for car finance and what you can do about it.

Yes, it’s possible to get car finance with poor credit. But you may find it harder to get approved, especially for higher amounts and lower interest rates. This is because lenders may see you as more of a risk if you have bad credit. Don’t worry – we’ve got some tips to help you improve your chances of getting car finance with bad credit below.

Yes – but like someone with a poor credit history, you may find it harder and more expensive. Not having a credit history can make it difficult for lenders to know if you’re a reliable borrower who’s likely to pay back a loan on time. It’s a common problem for young people and those who’ve recently moved to the UK. Luckily, there are several ways you may be able to build your credit history.

Bad credit can make lenders think there’s a higher chance you won’t pay them back. So they may turn you down for car finance to avoid taking on the risk. Or they may charge you a higher interest rate as a way of reducing the risk.

So what is bad credit? Basically, it’s information that suggests you haven’t managed credit well in the past. This includes things like late payments and defaults. Lenders can search for this information on your credit report when you apply for car finance with them.

Your free Experian Credit Score is a good place to start. It’s a number between 0-999 that reflects the information on your credit report. ‘Bad’ credit will bring your score down. So the lower your score, the less likely your chances of getting approved for car finance. If you think something’s affecting your score, you may want to check your Experian Credit Report.

Poor credit doesn’t mean you have to give up on getting car finance. There are several ways you may be able to improve your chances of acceptance and get a better deal.

  • Improve your credit score. Things like making payments on time, paying down debt and registering to vote can help you look better to lenders. Need a quick win? See if you can lift your score instantly with Experian Boost*.
    * Free Experian account linked to your current account is required. Score increase subject to status. Not all lenders use Boost.
  • Choose a cheaper car. Borrowing a smaller amount can help you increase your chances of acceptance and reduce interest rate costs. Consider a vehicle with lower specs or used car finance.
  • Pay more upfront. You may be able to reduce your interest rate by putting down a larger deposit or making an annual payment instead of smaller monthly payments.
  • Ask someone to be your guarantor. This is someone who agrees to make your car finance payments if you can’t. A guarantor helps lenders reduce risk, so they may be more likely to lend to you.

How does bad credit car finance work?

It’s unlikely you’ll find lenders advertising ‘bad credit’ car finance. But some car finance offers are more suitable for people who have a less-than-spotless credit history. These deals often offer lower amounts and higher interest rates, as this helps lenders reduce the risk of giving you credit.

It’s important to find the right car finance for your needs. Get an idea of which deals may suit you with our car finance calculator.

It’s also useful to understand the different types of car finance. Here’s a quick summary:

  • Personal contract purchase. You’ll pay a deposit and then make monthly repayments. When your contract ends, you can either return the car or buy it after a final payment.
  • Hire purchase. You’ll pay an initial deposit and make a set number of monthly payments to eventually own the car.
  • Personal loan. You can use this type of loan to buy almost anything, including a vehicle. You can buy a car outright using the loan money. Then you’ll make monthly repayments to the lender until you’ve repaid the debt.
  • Leasing. You’ll pay a monthly fee to use the car, but you won’t ever own it. The fee amount depends on things like car type, lease length and mileage.
  • 0% car finance. You’ll usually need a good or excellent credit score to get this interest-free deal. Plus, you’ll typically have to put down a larger deposit and make bigger monthly payments.

There’s no magic number that guarantees you’ll get approved for car finance. Each lender has its own criteria and its own way of calculating your credit score. So a “no” from one lender doesn’t necessarily mean you’ll get a “no” from all of them.

It’s always worth seeing if you can improve your credit score. Even a small boost may make the difference between getting accepted or rejected. And if you don’t need to buy a car urgently, you may want to spend some time saving for a larger deposit.

No, you can’t take out car finance in your name for someone else – this would be fraud. But you could consider contributing to their deposit or monthly payments. Or you may be able to help them get a better deal by being a guarantor.

A guarantor is someone (usually a close friend or relative) who agrees to make your monthly payments if you can’t. Make sure you both understand the risks. Your guarantor should be confident they can foot the bill and you should be confident they won’t need to.

Lenders don’t have to tell you why they refused you. But it’s worth asking as some may share their reason. It’s possible to get refused because of an error on your application or a mistake on your credit report, so it’s worth ruling out these reasons first.

If you’re refused car finance because of bad credit, it may be worth spending some time improving your credit score. Otherwise, you may need to adjust your expectations. For example, consider getting a smaller loan or accepting a higher interest rate.

Being refused for credit will leave a mark on your credit report. What’s more, your score will dip each time you make an application. Your score should recover over time, but only if you look after it. So it’s wise to space out your applications for car finance.

Experian helps you compare car finance offers that match your criteria. Plus, we’ll calculate your chances of approval based on your unique data. Searching for car finance will never affect your score, so go ahead and give it a spin.

Just remember, we’re not a lender, we’re a credit broker working with a selection of lenders.† This means we don’t provide credit, but we can help you find and compare different offers all in one place.

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