Can you get a car on finance with bad credit?

    Did you know that you can purchase a car even if you have bad credit? In the UK, the far majority of new cars are bought on finance, and a fifth of used cars are too. The diversity of financing agreements available today allow more UK drivers to get their own vehicles. 

    While it’s possible, securing car finance with a low credit score entails a few additional hurdles. To offset perceived risk, lenders often increase interest rates and may change loan terms. It’s important to review all financing documents and your budget carefully before signing onto a financing agreement.

    The relationship between credit and car finance

    It’s possible to find a car financing agreement that works for you, even if you have bad credit.

    There are many ways to finance a car purchase if you do not have the ability to pay the full asking price upfront. Regardless of if you choose Hire Purchase, Personal Contract Hire, or Personal Contract Purchase loans, or choose to go for a conditional sale, lending organisations will usually review your financial history before approving funding. 

    A full credit check is necessary for formal car financing applications. While some lenders offer ‘soft checks’ to see what sort of agreement you’ll be eligible for, which are not recorded on your credit file, a full credit check affects your credit score. Although it’s not a major concern, you should avoid taking out multiple applications if you’re likely to fail, as this record will look risky to lenders and negatively impact your credit score. 

    Having a low credit score, also known as having bad credit, significantly impacts your car financing by influencing the terms of the loan. Lenders use credit scores to assess the risk of lending money, and a lower score indicates a higher risk for them. 

    Bad credit can limit your access to loans and may result in higher interest rates to offset lenders’ perceived risk of taking on doing business with you. This can result in higher monthly payments and increased overall costs. Bad credit can also result in more limited financing options and stricter approval criteria.

    Getting car financing with bad credit

    Even if you have less-than-stellar credit, these three tips can help you land a car financing agreement:

    1. Offer a large initial deposit – Providing a sizable initial deposit when securing car finance can increase your chances of approval. A substantial upfront payment reduces the amount that you’ll need to finance your car, making you a less risky borrower in the eyes of lenders. This can result in more favourable loan terms, and potentially lowering interest rates and monthly repayments.

    2. Have a guarantor – Having someone with a strong(er) credit history co-sign your loan is another way to finance your car. Your co-signer will be responsible for your outstanding debt if you default, a fact that provides an additional layer of security for lenders and increases your likelihood of loan approval. 

    3. Do your homework on lenders – Look for lenders who are willing to work with individuals with low credit. Not all lenders are open to this risk, so research and identify those specialising in it. They’ll understand the unique challenges and may offer more tailored solutions for your financial situation.

    Available finance options

    someone signing a contract
    There are many car financing options available, even if you have a low credit score.

    🏁 Hire Purchase (HP)

    Hire Purchase (HP) financing is a popular option for those with low credit scores. This traditional financing route involves paying off the car’s value, plus interest, through fixed payments over a set time period. Ownership transfers to the buyer once the final payment is made. HP schemes are designed to provide more accessible financing for those with a poor credit rating, but they may include higher interest rates to compensate for the risk that financial lenders take on.

    🏁 Personal Contract Hire (PCH)

    Personal Contract Hire (PCH) loans are popular car financing options in the US and gaining in popularity in the UK. PCH financing is effectively a long-term car rental agreement. If you’re eligible for a car leasing contract, you’ll pay a deposit and a monthly cost for a vehicle. At the end of your contract, you give the car back and walk away. As the cost for PCH is usually lower than buying or financing a new car, you can choose from more expensive and premium options.

    While PCH may be available with poor credit, terms and conditions vary among lenders. However, keep in mind that it’s difficult to get out of a PCH loan early.

    🏁 Conditional sale

    A conditional sale is another car finance alternative. Similar to HP and PCH loans, conditional sales involve monthly payments and a deposit. However, ownership transfers immediately, and the buyer is responsible for the vehicle’s maintenance and insurance. Conditional sale allows drivers with a poor credit history to own the car without a large upfront payment. Like other financing options, it may come with higher interest rates.


    What is the lowest credit score to finance a car?

    The minimum credit score for car financing varies, but is generally within the 500 to 660 range. Having a good credit score increases the likelihood of securing better loan terms and lower interest rates.

    Do car dealers accept bad credit?

    Yes, many dealerships will still work with individuals who have bad credit finance. However, expect higher interest rates and more stringent loan terms. Exploring specialised car financing options may be beneficial.

    Can I finance a car with no credit history?

    Yes, it is possible to finance a car without having a credit history. Financial lenders may consider other factors, like income and employment, when pulling together loan terms. However, you may be presented with higher interest rates.

    Should you sell your car?

    Want to learn more about the best ways to sell your car? Check out more of our guides here, covering everything you need to know about different finance schemes, and what they mean for you as a car owner.