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Bad credit and car finance

Bad credit doesn’t prevent you getting car finance. Here, we look at your car finance and leasing options if you have a bad credit rating.

Last updated on 16 October 2023 | 0 min read

A bad credit score can make it harder for you to secure car finance agreements, but it doesn’t prevent you entirely.
Here, we look at your car finance options if you have a lower credit score. So, first up: what is a credit score? Jump to: • Credit basicsBad credit car finance optionsImproving your credit scoreJargon buster and FAQs

What is a credit score?

A credit score is a three-digit number that represents your borrowing history.
Your personal credit score is ordinarily calculated using your credit report. It considers any credit account payments you’ve made, credit searches you’ve undertaken, your total debts and credit availability, and public records such as your information on the electoral roll. Keeping your credit information tidy and under your control, and paying credit debts back in full and on time, can help you get a higher credit score.

What is a credit rating?

Credit score and credit rating are sometimes used interchangeably, but they are slightly different. A credit rating refers to a variety of systems and scores used to assess a consumer’s creditworthiness.

What is a credit report?

A credit report is a record of your personal history when it comes to borrowing. It looks at your personal finances and credit history from several sources including any credit cards, bank payments, direct debits and debts you may already have including mortgages or existing finance payments.
It will also include electoral roll information and any public records, such as County Court Judgements and insolvencies. Your credit report will be used by car finance providers, alongside your application form, to see if you meet their criteria for lending.

Can credit score affect car finance?

Your credit score is used by lenders – including car finance providers – to gauge how likely it is you’ll be able to make any repayments you owe.
As such, people with a higher credit score are often more likely to be accepted for finance applications. Those with high credit scores can sometimes access better deals with lower interest rates, or even 0% car finance deals.

Where can I find my credit score?

You can get a free copy of your statutory credit report and credit score from any of the three main credit references agencies: Experian, Equifax or TransUnion.
All three agencies will have the same records, but they use different formulas to calculate your credit score. As such, your score may be slightly different depending on who you go to.

What is a bad credit rating?

Generally, you could be considered a sub-prime borrower if you have a credit score of less than 500. Sub-prime borrowers are more likely to be rejected or face higher interest rates.
Keep in mind that lenders will look at your credit report, your application form, and any business they’ve done with you in the past before they decide. There isn’t a credit blacklist or set credit rating that’s guaranteed rejection or acceptance, and different lenders may come to different decisions.

Can bad credit get car finance?

Some lenders may refuse you if your credit score is very low, while others may offer your car finance but with higher interest rates – it’s at the discretion of the lender.
If you are offered a deal with higher interest rates, make sure you look at your budget again. If your interest rates are higher, your total monthly payments will be too. You need to make sure you can afford the monthly payments – failure to do so can make your credit score drop further and could even result in further actions leading to repossession. As such, your choice of vehicle may be limited to lower value cars. Don’t stretch for a more expensive car if you can’t afford it every month. If you pay your car finance off in full and on time every month, you can actually improve your credit score over time – which could mean you get better rates next time.

What if I am struggling to make payments to creditors?

If you are struggling to make payments to your priority bills (mortgage, rent, council tax and utilities) or any other creditors (loans, credit cards, catalogues etc) then free, confidential advice can be found by contacting the Citizens Advice Bureau or visiting the Money Helper.

What are the different types of car finance for bad credit?

The main types of car finance should be available to you, though different providers will have different criteria for applicants with low credit scores and may charge higher interest, or place certain restrictions in the contract if you have.
There are other things to consider when getting a finance deal too, such as how much you can afford to pay each month and whether you want to own the car or not. Remember that HP and PCP car finance deals usually require a deposit. Click on the links to learn more about each finance type: • Hire purchase (HP)Personal contract purchase (PCP)Conditional sale (CS)

How much does bad credit car finance cost?

There’s no fixed price for any finance contract, so you should shop around to find a price that works for you. The amount you pay depends on a number of factors, including:
• The amount you’re borrowing • The length of your contract • Your credit score • The interest rates available • The size of your deposit Generally speaking, you’re more likely to see more expensive quotes if you have a lower credit rating. The easiest way to find out is to get a quote. You can use our free finance calculator as a guide, which shouldn’t affect your credit rating. Some quotes may lead to a hard check being made on your credit score, so be cautious about making too many at the same time.

Soft and hard credit checks

Requesting a quote will create a soft or hard credit check, and a hard credit check can affect your credit score. If you have a lot of hard checks in a short space of time, this could bring your credit score down.
A soft check is an inquiry into your credit report for informational purposes. It doesn't affect your credit score, and is typically done without your explicit permission. It's visible only to you and to the company or entity that made the inquiry. A hard check is a thorough credit inquiry made when you apply for a new line of credit, like a loan or credit card. It can have a small impact on your credit score and stays on your credit report for about two years. You need to give explicit permission for a hard check.

How do I get a cheaper car finance deal?

Make sure your information is correct and up to date when you apply so you’re getting the right quotes for you.
Beyond this, you could try: • Working to improve your credit score (see our tips below) • Paying off any outstanding debts • Increasing your deposit – which should be seen as less of a risk for the lender, so they might be able to offer you a better deal. • Increasing the term of the contract – this will give you longer to pay back what you borrowed and make your monthly payments smaller, but is also likely to increase the amount you owe overall. • Choosing a lower-spec vehicle – which should help keep costs down and reduce the risk for the lender.

What if I’m refused car finance?

First up, check your application form. Filling it in wrong (anything from writing £100,000 when you meant to put £10,000 or a simple spelling mistake) could result in your being rejected. Also make sure you have enough supporting documents, such as proof of address and employment.
You should also check your personal credit report for any errors, as fixing these could improve your score and your chances of approval. Every car finance lender has a different criterion, so being rejected from one doesn’t mean you’ll be rejected from them all. Just be aware that if you’re refused car finance multiple times in a short window, this could show up on your credit report and affect your credit score. Remember: you could be refused for car finance if you have a bad credit rating, or if you don’t have much credit history (for example, you’ve never owned a credit card). In both instances, you can improve your chances by improving your credit score.

Improving your credit score

If you are refused car finance or have decided to wait and get a better deal with a lower interest rate, then you can improve your credit score and try again.
Check your report for errors or fraud
Any differences between the information on your application form and your credit report could lead to rejection, so make sure they match up: ideally before you make an application.
If you find you’ve been the victim of fraud, make sure the credit reference agencies add a notice of correction to your file, which will show it wasn’t you.
Get some credit if you don’t have any
If you don’t have any credit history, it’s hard for a lender to see if you’ll pay them back on time. Take the time to look at options, such as low interest credit cards, that are suitable for you – just read the terms and conditions every time.
Don’t apply for too much new credit
Applying for credit creates a hard inquiry on your report, and too many hard inquiries in a short space of time can bring your credit score down. This effect will fade over time, but it’s best just to open credit you need and can pay off – nothing more.
Don’t close old credit
Improving your credit score is a balancing act – you need just enough to show you can pay off your debts.
It can be tempting to close old credit cards down, but an old account that’s been paid off every month can look good on your report. Furthermore, closing an account can increase your credit utilisation ratio (see jargon buster below). Just be aware that having a large overall credit limit, that you’re not fully utilising, can be seen as a negative by some lenders so you need to find a balance that shows you can manage and pay off debts.
Pay bills on time
As your credit report is includes a history of how well you pay debts back, paying bills on time (including everything from rent to phone bills) could put you in a favourable light to potential lenders.
Consider setting up direct debits if you can or set reminders of when payments are due.
Keep credit card payments down
If you can regularly make small payments on your credit card and pay them off by the end of the month, you should be able to boost your score and show you can reliably pay money back.
Register to vote
If you’re not on the electoral register, you’ll struggle to be approved. If you’re worried about privacy, you can remove yourself from the open register, which will stop third parties being able to buy your data.
Close any bad joint accounts
If you’ve had any joint accounts over the last six years, these will show on your credit report through ‘financial association’.
Just remember that if you close an account with a negative balance and don’t pay it off, this could end up with a collection agency. If it does, this could negatively impact your score.
Make sure defaults and bankruptcy are removed
Missed payments will show on your credit report for three years. Bankruptcy, defaults or County Court Judgements (CCJs) will show for at least six years.
Other insolvencies can include Individual Voluntary Arrangements and Debt Relief Orders in England, Wales and Northern Ireland, and Sequestration and Trust Deeds in Scotland. After this, they should be removed from your credit history – but it’s not always automatic so check with all three agencies this has been done.

Jargon Buster

Credit utilisation ratio
This is how much you currently owe, divided by your credit limit. So, if you have £1,000 available on a credit card and owe £250, you have a credit utilisation ratio of 25%.
County Court Judgement
This is a court order telling you to pay money you owe in debts. CCJs are normally issued in England, Wales and Northern Ireland. If you receive a CCJ, you have two weeks to respond.
For more information on CCJs, please visit the Money Advice Service.
A default is when you are deemed to have broken the terms of your credit agreement, and your creditor (lender) cancels your agreement with them.
If you miss payments, or don’t repay the correct amount, your creditor may send you a default notice – which serves as a warning to make the full repayment. If you fail to do so, the default may be applied. You can only default on a debt once, but further action can be taken after – for example your debt could be sent to a debt collection agency who will contact you on the lender’s behalf. Defaulting can significantly reduce your overall credit score.

Bad credit and car finance FAQs

A default is when you are deemed to have broken the terms of your credit agreement, and your creditor (lender) cancels your agreement with them.
If you miss payments, or don’t repay the correct amount, your creditor may send you a default notice – which serves as a warning to make the full repayment. If you fail to do so, the default may be applied. You can only default on a debt once, but further action can be taken after – for example your debt could be sent to a debt collection agency who will contact you on the lender’s behalf. Defaulting can significantly reduce your overall credit score.
What brings my credit rating down?
Missed payments, default, bankruptcy or County Court Judgements (CCJs) can have a serious impact on your credit score.
Shorter-term, your score may be brought down by too many applications for credit or opening new lines of credit. Credit scoring isn’t uniform though, so missing one payment isn’t likely to have a massive impact if your overall credit history is great. If your overall history is poor, it can have more of an impact.
Why was I refused car finance with a good credit rating?
You may have filled in your application form incorrectly.
It may just be the case that you don’t meet the lender’s criteria, in which case try and get pre-approved by another lender. Just be aware too many hard checks in a short space of time can negatively affect your credit score.
What is a credit check?
When you apply for credit, such as car finance, the lender will check your credit report to see if you’re eligible for their criteria.
If the lender reviews your credit report before approving you, this is a hard credit check and will show on your credit report. Too many hard checks in a short space of time can bring your credit score down. If you check your own credit score, or the lender checks your credit to pre-approve you, this is a soft check and does not impact your credit score.
Is there bad credit car finance for unemployed?
You can get car finance if you’re unemployed. As with applicants on benefits, you need to budget properly and make sure you can afford the car every month. Then, you need to prove this in your application.

More information

For more information on managing your credit, please refer to the Money Helper.
The main credit rating agencies also offer guidance and more information: Experian. Equifax. TransUnion.