How to get car finance with a bad credit score

Car finance is becoming one of the most popular ways to purchase a new car in the UK, with consumers borrowing a staggering£31.6 billion last year to purchase a car, with a record breaking 2.7 million new cars sold.

Unfortunately borrowing money from banks and lenders can be difficult when your credit score is less than perfect. This is where bad credit car finance is a great option to consider when you are looking to buy a new or used car.

Types of car finance

There are different types of finance agreements to consider when you are buying a car so it’s important to find a finance deal that suits your needs.

A Hire Purchase agreement is the one of the simplest ways to purchase a car due to its simplicity. You choose a car, the finance company pay the dealership in full and you repay the finance company – as simple as that!Once all of the repayments have been made ownership of the car will be transferred over to you. Hire purchase finance deals are popular as you can benefit from smaller deposits and lower interest rates with this type of finance agreement.

Personal Contract Purchase is similar to a hire purchase agreement but there is a lump sum (known as a Balloon Payment) at the end of the payment plan that has to be paid if you’d like to keep the vehicle. If you don’t want to keep the car, simply hand it back to the dealer without any extra cost, provided you have stuck to the conditions that were established at the start of the contract. The car should be in a good condition and should not have exceeded the mileage that was set at the start of the agreement or you will have to pay for every extra mile you have driven. If you want to keep the car, you pay the balloon payment and the car is yours.

In a Conditional Sale agreement, it is established before the contract that you will purchase the car and have full ownership when all of the payments have been made. Similar to a hire purchase agreement, the finance company pays the dealership and you repay the finance company. The repayments are fixed for the whole repayment term and interest rate will be set by the lender.

A personal loan is also another way to purchase a car and gives you full ownership of the vehicle. A personal loan can be tricky to secure with a bad credit score, but it is possible to apply for a guarantor loan and have someone vouch for you if are considered a riskier customer to the lender.

How does my credit score affect my chances of being approved?

When you apply for any type of finance or loan, your credit score will be checked by lenders to determine whether you have kept up with payments on current and past loans, bills and mortgages. Lenders will evaluate your credit profile to assess how much of a risk you are to the lender, and gives them a good idea of your repayment history and spending habits. The higher risk you are, the higher your interest rates will be. A credit score that is 620 or less will generally be considered a ‘bad’ credit score and consequently you will find it difficult to secure car finance through a bank, building society or high street lenders.

How can I improve my credit score?

If your credit score needs some improvement, there are some steps that you can take that are easy enough to complete. First of all, if you are applying for finance and you aren’t on the electoral register, then you should do so. This doesn’t improve your credit score but it can improve your chances of being accepted by a lender as it allows them to trace your address and prevents fraudulent applications.

You should only apply for credit using one lender at a time, and if you’re refused finance, avoid the temptation to try other lenders. Whilst it’s true that different lenders have different score cards, it isn’t worth the risk of being declined again. It is better to take steps to look at your credit score, find out what needs improving and wait for a while until you reapply anywhere else.

No credit history?

If you have no credit history, it’s a good idea to take out a small credit card to build up a score. A good option is a prepaid credit card or a credit builder as they’re specifically designed to help build up credit. These types of credit builder cards will have a higher interest rate than ordinary credit cards so paying in full each month is always recommended.

Bad credit lenders

Bad credit finance lenders are specialists in securing car finance if you have been declined elsewhere. You should expect the interest rates for bad credit car finance to be higher than a finance agreement with a good credit score.
In most cases, brokers will perform what is called a ‘soft search’ on your credit file which allows them to match you with the lenders they work with, so that your chances of being declined by unsuitable lenders are reduced. Once they have determined which lenders are the most appropriate for your application they will forward it on to them for approval. You will need to provide any other documents they request and agree to the lenders terms before your finance is paid out. In general, you will have to provide a proof of address, proof of any income and have a valid UK driving license.

And by repaying your finance agreement on time, it will ultimately improve your credit score, and if you need to reapply for car finance again, you will be able to benefit from lower interest rates.

Refused Car Finance is a bad credit car finance broker, based in the North East of England. We specialise in helping people secure various types of car finance who have a poor credit score from a panel of lenders who we work with. Our goal is to make car finance as easy and accessible for anyone and everyone.

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