Buying a car with bad credit score
Yes! You can buy a car with a poor credit score, but you may have to pay a higher APR or need a family member or friend to be your Guarantor
Do you have a Poor credit score?
The best place to check your credit rating is with one of the Credit Reference Agencies CRA such as Equifax.
Poor credit score will usually indicate you have:
- Missed repayments.
- Defaulted on loans.
- CCJ’s against your name.
You can buy a car with a poor credit score (in your name), but the cost of the borrowing will be higher.
How to get car finance with a bad credit score
If you’re reading, be assured there are many young drivers (and not so young) with a Poor credit rating and several car finance companies offer loans to such drivers.
Choosing a car finance for young drivers company that initially does a “Soft Search” is to help protect your credit score.
Providing you can meet the following criteria you could get car finance:
- Aged 18+
- A credit score of between 225 and 350 (a Poor credit rating on the Equifax chart).
- A minimum monthly take-home salary of £1000.
- 12 Month employment history.
- You must have registered on the electoral roll at your current address.
What if you have not applied for credit before?
When you apply for credit first time, you will start with a Low credit score.
Getting a good credit history is something you have to build up over time, so things like getting finance to buy a car might not be as easy as you would hope.
If your credit rating is not sufficient to take out car finance on your own, you could apply for Guarantor car finance.
What if you get a decline for your finance application?
You may still buy a car despite a Poor credit score but would need to get a Guarantor car loan.
A Guarantor car loan will be more expensive, and you will require someone to guarantee the repayments.
How do you improve a bad credit rating?
There are some easy ways to improve your credit rating for car finance.
- Apply for your credit report; find out what information is held by the CRA’s before you make an application for credit. If you have already had an application declined a Credit Report will help you establish. Why?
- If your name is not on the electoral roll at your current address, you won’t get credit!
- If you get declined, don’t make repeated applications that could only make matters worse but instead establish why you got declined for credit.
- Only make complete and accurate applications. Inaccuracies or omissions may affect you getting credit.
- When you are successful for finance, make the payments on time to build a good credit history.
A Soft Search is best for your credit file!
When you apply for credit, the Lender will either make a Soft or Hard search on your credit file. Ask the Lender what type of credit file search they will carry out.
A Soft search on your credit file is not visible to other lenders so if declined it won’t show in your credit file.
A hard search will go on your credit report and to regularly be applying and getting a refusal for credit will affect your credit score.
Are you on the Electoral Roll?
You won’t get credit if your name is not on the electoral roll at your current address. (A credit report will confirm if you are on the register).
Get on the Gov.UK Electoral Register here.
Buying a car with bad credit score
Can I buy a car with a bad credit score?
Your credit score is so important especially when it comes to buying a car on the best car finance agreement for you. Sadly, negatively impacting your credit score is really easy to do.
Have you accidentally cancelled a direct debit, making your monthly payments late? or Went over your mobile limit and didn’t repay it right away? Even a couple of missed payments can devastate your credit score.
In many instances, people can have credit scores by doing nothing at all! For a finance company, an empty credit score is almost as bad as a negative one.
Fortunately, though, you’re not out of luck. There are options out there if you’re buying a car with a poor credit score. Read on to find out more!
Can I buy a car on finance independently with a bad credit score?
The short answer is yes, maybe!
When buying a car on finance, most people do so independently. The application is in your name only.
Unfortunately, you typically need to have a good credit score to be successful. That said, it’s not impossible, with bad a credit score to buy a car on finance, and there’s likely to be a car loan out there for you.
Nowadays, quite a few lenders specialise in offering car finance deals to people buying a car with a bad credit rating. Of course, there’s a catch!.
You’ll likely be limited to an HP car finance deal which might be fine. You just won’t get offers for other types of car finance such as a PCP deal which you’d need to buy a new car.
You will have to face pretty high-interest rates, put down a sizeable deposit, or be limited to a fairly cheap car. While this isn’t ideal, it does get you a car: assuming you can afford the monthly repayments.
Assuming you make all your repayments on time. You could dramatically improve your credit rating by the time the contract is up. Setting you up nicely for future credit agreements such as buying a new car or purchasing your first property.
But, suppose you can’t find any lenders to accept you for car finance on your own. Don’t worry. You’re not out of options yet.
Can I apply to buy a car on finance with someone else when I have a bad credit score?
If you can’t get car finance by yourself! Get some help!
You could, despite owning a bad credit score take out a car finance agreement with someone you trust. It’s usually a parent or other family member who gets the call.
It’s stating the obvious but the other person can’t have a poor credit history! It won’t work!
Indeed they need to have a significantly better credit score than you and likely a higher income. It also helps if they’re a homeowner.
Taking out a car finance application with someone else will link the two of you financially. You must ensure they are aware of your bad credit profile before proceeding.
As well as benefiting from their positive credit ratings, you’ll be able to get a better car loan with a lower interest rate.
If you’re a young driver looking for a new car as your first car purchase, then applying with someone else will dramatically improve your chances.
How does car finance work when buying a car with another person?
Typically when you have a bad credit history and want to purchase a car with someone else to improve your chances of a successful application, there are two routes you can go.
They are a joint car finance application or a guarantor car loan.
In both these scenarios, you must make the application with someone you trust – ideally, a close family member or parent/guardian.
In a joint application, you are jointly legally obligated to pay for the car and own it jointly at the end of the agreement.
A guarantor application is where you’re the first port of call to pay – but if you fail to, then it lies on the guarantor. But, with guarantor finance, it is you, the borrower, who will own the car. Not the guarantor even if they pay off the loan.
Clearly, guarantor loans can be a little awkward to approach, so ask someone you won’t fall out with!
What kind of car finance can you get buying a car with a bad credit score?
If you’re taking out a bad credit car finance loan independently, you’ll likely be looking at a Hire Purchase (HP) finance.
Buying a car with someone else on the agreement you should be able to pick up an HP or Personal Contract Purchase (PCP) deal. These finance products are actually pretty similar.
Both will require a credit check, and you’ll usually sign up for a three to a five-year agreement.
Hire Purchase car finance deal
With the hire purchase deal, you’ll make monthly repayments on the car’s total value. At the end of the agreement, you’ll own the vehicle outright. However, in the meantime, the vehicle belongs to the finance providers- so you can’t go crazy with the mods or sell it!
Personal Contract Purchase finance deal
A PCP is slightly different. You’ll still make monthly repayments over a contract period, but it won’t be over the car’s total value. At the end of the car finance agreement, you can choose to pay what’s called a balloon payment.
A balloon is the ‘guaranteed future value’ of the car. Unfortunately, this is usually at least a four-figure sum! The benefit of PCP is your monthly car finance payments will be lower than with an HP.
The other options at the end of a PCP are to hand the car back and walk away or take out another PCP deal.
Should I get car finance with an HP or PCP?
In general, we recommend that you go for the HP deal if you’re confident you want to own the car at the end of the agreement.
If you’d rather change up your vehicle every couple of years, keep your options open, or just want lower monthly payments, a PCP could be better.
A popular way to drive a new car is to lease, essentially, a long-term rental, but you’ll require a good credit history.
Taking out a personal loan from the bank is also an efficient way with great benefits to getting car finance: however, this option is also likely to be closed to you if you have a poor credit rating.
Having no credit history can be worse than a bad credit rating
You might be wondering – how can you have a bad credit record as a young person who’s never had any finance?
Yep, it’s unfair, but the lender sees someone with no credit history as high-risk. Simply put, the finance provider will find no evidence in their credit checks to show that you’re financially responsible.
That means that buying a car on finance with bad credit as a young driver between 18-22 can be tough.
Thankfully, it does get easier, assuming you start getting some credit history under your belt.
That can be as simple as buying an affordable mobile phone on a contract in your own name or doing a grocery shop on a credit card once a month, and when payment is due, paying it off totally.
While this will help with buying something like a used car, it’s also crucially important for getting the best deals on future loan applications you might make in the future.
Should I check my credit before applying for a car loan?
Before applying for virtually any credit agreement, you must check your credit score. If you realise you’ve got a poor credit score and likely won’t get accepted, don’t apply!
This is particularly important when you do have a bad credit score. Applying and having your credit file searched can further damage your credit status.
There are two kinds of credit searches: a soft search and a hard search.
A soft search doesn’t damage your credit score or leave a mark on your file. In general, it’s usually used as an early screener to see if you have a decent chance of getting accepted.
However, in most cases, you’ll need a hard search at some point for any serious finance deals, like a car finance deal. A hard search will negatively impact your credit rating.
While you want to avoid getting declined, it’s also important you don’t apply for too many applications at once, as this doesn’t look good on your credit history.
What information is included in a credit report!
Your credit report is almost like a school report card. It shows how you’re getting on at a glance, and it’s not always fair! At its most basic level, the credit history is important as it enables the lender to confirm your identity.
It contains personal information, like your address history and even if you’re on the electoral roll (which is why it’s so important to make sure you are).
A credit report includes all the details about any finance agreements you have – including mortgages, car loans, credit cards, and even store cards.
The credit score you get on your report is a three-digit number. The higher, the better! Having a good credit score dramatically increases your chances of getting accepted for a car loan and credit cards, personal loans, and more.
If you have a low credit score or other issues (like a county court judgment), you’ll have to lower your expectations: you’re likely to get poorer lending options than someone with a decent credit score.
Who calculates my credit score?
There are three leading Credit Reference Agencies (CFA’s) for UK residents. These are Equafax, TransUnion, and Experian. All of them hold data about you (which you can request to see at any time).
They each use slightly different scoring criteria, so it’s worth checking your credit score on all three to make sure your score is solid, as it’s often hard to tell what Credit Reference Agency the lender will use.
What is considered a bad credit score for car finance?
As there are three credit agencies, there’s no one true credit scoring system – so it can be hard to say what’s good and bad! This is because each agency uses different methods to calculate your score.
In general, though, they’re not very different at all, so you’re unlikely to have a very poor credit rating with one and a great rating with the other. In some cases, though, you might be on the edge of being accepted – so the difference between ‘okay’ and ‘good’ can be a dealbreaker!
Whatever your credit score, it’s important to face it – even if it’s poor, you know where you stand. With some patience and discipline, you’ll have a solid credit rating in no time: meaning better interest rates and more options for finance in the future.