Car Finance for Bad Credit - How To Get It

Having a poor credit score can make it more challenging to get approved for car finance from traditional lenders. If you’re looking for car finance with bad credit, there are still options available to you. Specialist lenders understand that setbacks happen and are willing to work with borrowers to get them in the driving seat. 

In this article, we’ll explain what having bad credit means when applying for car finance. We’ll help you understand the options available from lenders who offer bad credit car finance. You’ll learn tips for improving your chances of approval, what types of car finance are available with bad credit, and understand the reasons why your finance application could be refused. 

Even if you have CCJs, defaults, or missed payments in your credit history, car finance can still be accessible under the right circumstances. We’ll guide you through the process of getting the keys to your next car despite a less-than-perfect credit score. Read on to find out more… 

What is considered bad credit?

Bad credit generally references a person with a poor credit history that negatively impacts their ability to borrow money or easily access financing options. Credit scores below 580 (out of a possible score of 1,000) are generally considered an indicator of bad credit by most mainstream lenders. In most cases, a score of at least 600 or above is adequate for most finance companies. 

Having a history of missing repayments, delayed payments or defaulted debts frequently puts you in bad credit territory in the eyes of lenders assessing risk. County Court Judgements (CCJs) against you for unpaid debts totaling over £500-£1,000 can also signal bad credit and are likely to put lenders off. It goes without saying that being declared bankrupt puts you firmly in the bad credit group too.

While having one or two instances of financial issues or struggles does not necessarily make your credit situation dire, most lenders will put people in the bad credit section and view you as high risk when it comes to future defaults and late repayments.

How to get car finance with bad credit - our top tips and tricks

Getting approved for car finance in the UK with bad credit may seem difficult, but is certainly possible if you take the right steps. Here we share our top tips and tricks to accessing finance deals if you have a poor credit score:

Check your credit report

Before applying for car finance, obtain copies of your credit report from one of the three leading agencies in the UK which are Experian, Equifax, and TransUnion. Review your report carefully and ensure no errors are dragging down your score unfairly. If you find mistakes, you can file a dispute to get these rectified and your score improved.

Improve your credit rating

In the months leading up to your car finance application, work on improving your credit by paying all bills on time, settling any debts, and avoiding further missed payments. A period of sustained incremental improvements can help to boost your score.

Get pre-approved for car finance

You can check your eligibility for car finance by getting pre-approved from specialist subprime lenders that will be recommended by your local dealership. This will give you a better idea of your chances before you formally apply.

Offer an initial deposit

While zero deposit finance deals are available to borrowers, choosing to put down a deposit of at least 10% or more signals you are serious about repaying the car loan to lenders. 

Use a guarantor

A guarantor is a third-party person (such as a close family member or friend) who agrees to be responsible for any debts that occur if you can’t meet repayments. Adding a guarantor with stronger credit to your finance application, or putting up an asset like property can give lenders security, increasing your chances of being approved for car finance.

Highlight stable income

Proof of income and length of employment can make a positive difference to your car finance application. You can provide proof of recent payslips, bank statements, and your employment contract. 

Stick within your budget

The key is to only apply for the amount of financing you can truly afford every month and stick within these limits. 

By following these tips and tricks, those with poor credit scores can set themselves up for success in being approved for car finance.

What types of car finance are available with bad credit?

While you won’t find lenders openly advertising the option of car finance for bad credit, there are deals to be had for those with less-than-perfect credit scores. The types of car finance options available for people with bad credit include:

Subprime car finance

Specialist subprime lenders offer car finance options to those with bad credit, although it is worth bearing in mind that interest rates are higher and down payments are larger in order to achieve this. There are two main types of finance deals available: 

• Personal Contract Purchase (PCP) - a popular option where monthly payments are made over a number of years. Provides to option to keep the vehicle, hand it back, or part exchange it at the end of the contract. 
• Hire Purchase (HP) - a preferred option for drivers who wish to own the vehicle at the end of the contract.  

Zero deposit finance

As the name suggests, zero deposit car finance means that you won’t put down an upfront deposit before your monthly payments start. However, bear in mind that your regular repayments will be much higher.  

Guarantor loan

Adding a guarantor with good credit improves your chances of approval and secures you a lower interest rate on the loan. The guarantor will need to understand they are liable for payments if you default.

What is subprime car finance?

Subprime car finance allows people with poor credit histories to access vehicles through financing deals, such as hire purchase (HP) agreements. Specialist subprime lenders provide credit to higher-risk borrowers who may not qualify through more mainstream sources. 

The top benefit of subprime car finance is being able to access a loan to buy a vehicle, but the perks don’t stop there; taking out and repaying a subprime car finance deal responsibly can actively contribute to positively enhancing your credit score over time. This is because it demonstrates you are capable of fulfilling a regular financial commitment.

While subprime lending costs more to the borrower upfront and requires discipline to avoid repossession of a vehicle, it provides a crucial credit pathway and flexibility many people with bad credit desperately require.

Advantages and disadvantages of car finance

At a glance:

In more detail:

Advantages of car finance

• Access to better vehicles - Finance allows people to afford more expensive cars with lower monthly payments rather than saving for a more luxurious model upfront.
• Ownership flexibility - At the end of finance agreements like PCPs, you have options to either acquire full ownership, return the car, or refinance the remaining value. 
• Cash flow maintenance - Monthly finance payments spread out the cost over time rather than one large cash payment, which helps borrower manage their cash.
• Available to all credit profiles - Even those with poor credit have finance options through subprime lending channels which are aimed at higher-risk borrowers. 

Disadvantages of car finance 

• More expensive overall - When accounting for interest and fees paid over the entire term, financing ends up costing more than paying cash upfront.
• Risk of repossession - Missing payments can result in lenders repossessing the vehicle, leaving people without transport and damaging their credit rating further.
• Limited ownership - Unless you opt to make a final ‘balloon payment’ with the likes of PCP finance, you never fully own the vehicle while making payments over the years. The finance company retains ownership during the agreement.
• Mileage limits - Some agreements like PCP leasing have annual mileage limits. Excess mileage charges at the end can add unexpected costs.

What documents are needed to secure car finance?

For most car finance applications in the UK, you will need to provide a standard set of documents as part of the paperwork. This includes - but is not limited to:

• Proof of identity - Lenders need assurance of who you are, typically supported by your passport or driver's licence.
• Proof of address - Documents confirming your current home address could include a utility bill (dated within the last three months) or a tenancy agreement
• Proof of income - Documents confirming your income sources and amounts, such as the last three months of payslips or the last two years of tax returns if you are self-employed.
• Bank statements - The last three full months of statements help lenders assess regular income amounts and make them aware of any existing debts and expenses going out.
• Proof of deposit - Statements showing you have funds saved to put down an agreed deposit amount (10% for example) of the car’s value.

Failure to provide the key documents required often leads to delays or instant rejection of your car finance application. If any documents seem difficult for you to access, discuss alternative evidence with your lender. For example, they may accept a signed letter from an employer rather than official payslips. 

Reasons why your car finance could be refused

Being refused for car finance can be disappointing, but understanding why it was declined is important to improve your chances of success next time. Here are the top six reasons car finance applications are refused in the UK:

1. Poor credit history - Issues like missed payments, defaults, CCJs, or bankruptcy can signal you are high risk and unable to afford repayments. 
2. Low credit score - Most lenders have minimum score thresholds, often around a score of 600. Scores below 500 often mean you have existing struggles managing debts and credit.
3. Unaffordable repayments - Even with a fair credit score, if your income and existing debts mean monthly car repayments are beyond 30-40% of disposable income, lenders deem the loan unaffordable for your situation.
4. Insufficient length of employment - Lenders typically want borrowers employed at least 6 months in a steady job. Jumping between jobs raises uncertainty over future income stability and capacity to repay.
5. Errors on application - Incomplete forms, inaccurate personal details, unsupported income claims, etc can see applications rejected instantly if information cannot be verified as true.
6. Not meeting deposit requirements - Most lenders mandate minimum deposits of 10% - but this can often be higher for poor credit borrowers. 

How to improve your credit score

Do you have a poor credit score? If so, here are some of the best ways you can actively improve your credit score:

Check your credit reports

Review your actual credit reports for free from agencies like Experian and Equifax to understand which factors are hurting your score. 

Pay all bills on time

Set up text, email, or app alerts for all of your credit commitments so payments are always on time. Even payments made a few days late can negatively impact your credit score. 

Lower credit usage

Try to keep credit card balances under 30% of their limits each month by paying more than just the minimum amounts due. 

Close unused cards and accounts

If you have too much available credit that you don’t need, it can make it all too tempting to overspend. Close unused accounts or credit cards if they aren’t needed. 

Avoid new applications

Every application you make for finance will trigger a hard check on your credit file which can lower scores temporarily, so only apply for what you truly need.

Register to vote

Update your electoral roll registration as not being registered can actually damage your credit score in some cases - always keep it updated.

FAQs and Answers - Frequently asked questions about bad credit car finance

We hope the FAQs below help you make informed decisions about using car finance to your advantage, even if you are classed as a borrower with bad credit:

Can I get car finance with very bad credit?

Yes, it is possible to get car finance in the UK even with very bad credit. Shop around specialist subprime lenders and consider guarantor financing to help get you across the line. Securing a car loan with bad credit takes more effort and leads to higher interest costs, but it is achievable with the right approach. Partner with understanding lenders able to accommodate high-risk borrowers.

What is the lowest credit score to finance a car?

The lowest credit score that most lenders in the UK require to receive approval for car finance is typically around 500-550 (out of a possible 1,000). However, some lenders that specifically finance high-risk borrowers may approve car loans to those with credit scores as low as 400-500. Approval is based on affordability rather than just the credit score.

Can I get car finance on Universal Credit?

Yes, it is possible to get car finance if you are receiving Universal Credit (UC) benefits. Choose subprime lenders that specialise in financing people on benefits or less stable incomes. 

What is black box car finance?

Black box car finance refers to a type of vehicle loan that uses telematics tracking technology to monitor a borrower's driving and mileage during their finance term. It is particularly common for younger drivers who have higher risk profiles without proven track records, but having a black box can help those with poorer credit access affordably priced car finance deals, as it helps lenders manage risks more actively. Responsible drivers could even receive discounted rates over time by proving they are a low risk to lenders by demonstrating driving behaviours through data.

What do I need to be accepted for car finance?

To be accepted for car finance in the UK, there are several key criteria lenders will typically assess your application on, these include your credit score, understanding your income versus debt, years in employment, residence status, and the initial deposit. Meeting all these parameters is no guarantee of 100% approval but gets you well ahead of the curve in showcasing creditworthiness and gaining a lender's trust in your ability to handle repayments.

What credit score is needed for car finance UK?

The minimum credit score needed to qualify for most standard car finance deals in the UK is typically around 500 to 550. A score of 600+ is generally the score needed for preferred car finance interest rates from prime lenders.

How can I increase my chances of getting a car loan?

Start by checking your existing credit score to see if it needs improving. Increase your deposit contribution towards the new car which will make lenders more confident in your commitment to repaying the remaining loan balance. Always choose an affordable car model that fits within your budget. Lower credit card, loan, and existing finance balances ahead of applying to free up your disposable income. Select longer loan terms as plans over 3-4 years or more keep monthly repayments lower and often fit easier into household budgets. 

Does a big deposit help get car finance?

Yes, putting down a sizable deposit can significantly improve your chances of successfully getting approved for car finance in the UK. While mustering large deposit sums can be challenging for those with existing financial struggles or thin credit files, placing a large deposit upfront can make or break your car loan application's success depending on the lender's criteria.

I have defaults and missed payments on my record. Am I still eligible?

Yes, lenders that specialise in bad credit understand defaults happen and are willing to work with you. The key is showing you now have a steady income to afford repayments. Provide documents supporting this and reasons for your past struggles.

Will interest rates be high due to my low score?

Lenders do charge higher rates to offset risks so allow for this depending on your current credit profile. Take time to compare rates from multiple bad credit lenders which can end up saving you hundreds, if not thousands of pounds. 

Should I accept the first car finance offer I receive?

No, while it can be tempting to accept the first lender willing to work with you, taking time to compare rates across two to three prime or subprime lenders is wise.

Can I get a brand-new vehicle with bad credit?

It can be more challenging to get approved for finance when purchasing a brand-new model of car. Those with bad credit should instead opt for a slightly older used or nearly new model of car. 

Secure car finance even with bad credit at Wilsons Epsom

Here at Wilsons Epsom in Surrey, we understand that setbacks can happen to anyone, which is why we offer a range of bad credit car finance options to get our customers driving in a car to suit their needs. 

We partner with leading lenders - including those that specialise in subprime finance - and we have extensive experience specifically helping those with adverse credit histories, including CCJs, defaults, or previous repossessions. 

Whether you have your eye on one of our brand-new premium cars or an approved pre-owned model, our team will explore every available bad credit finance option to secure the car of your dreams. Get moving with Wilsons Epsom today!