How to get car finance with poor credit

  • Bad credit doesn’t prevent you from financing a car
  • Hire Purchase can be the best finance format to go for
  • Interest rates are often higher for those with poor credit 

If you’ve got a poor credit rating, you may have resigned yourself to not being able to get car finance. However, there are finance options open to you, if you know where to look – plus a number of ways to boost your chances of being approved.

Defaults on your credit profile might mean you are unable to get a car on PCP, though Hire Purchase options should still be available. What sets the two apart is that PCPs defer payment for part of the car’s value until the end of the contract – meaning you pay off the debt more slowly – and as a result monthly payments are lower. With Hire Purchase, meanwhile, once you’ve paid the deposit and all the monthly payments, the car is yours.

Debt secured against the car

Sign up for a Hire Purchase scheme and the value of the loan is secured against the car. While this means that if you miss payments the finance company could repossess the vehicle to settle your debt, it also means that you are more likely to be approved in the first place – even if you have an iffy credit history.

As the finance is tied to the car, the risk to finance companies is less through Hire Purchase than if you paid for the car with an unsecured personal loan. As a result, even if you have been turned down for a standard bank loan, you could still be approved for a Hire Purchase scheme.

Improve your chances of being approved
Looking at Hire Purchase schemes can increase your odds of securing finance, but getting your finances in order could have an even bigger impact. You can improve your chances by doing the following:

Improve your chances of being approved

Looking at Hire Purchase schemes can increase your odds of securing finance, but getting your finances in order could have an even bigger impact.

You can improve your chances by doing the following:

  • Make sure you don’t have any outstanding payments on loans or credit cards you might have – late payments could significantly damage your credit rating.
  • Cancel any credit cards you don’t use. You might not use these but having access to them can hinder any applications for finance.
  • Check you’re on the electoral register at your current address. You may face difficulties gaining approval for finance if you’re not registered to vote – as lenders may find it much harder to verify your identity. If you’re not registered, sign up here.
  • Make a joint application with a parent or partner if they have a strong credit rating and are willing to help.
  • Be aware that if your finances are linked to your partner and they have a patchy credit history, this could reduce your chances. If this is the case make sure that you deal with your finances separately.
  • Similarly, if you break up it’s wise to separate your finances, as your partner’s spending habits could continue to impact your eligibility for finance. Credit reference agencies will be able to issue you with a Notice of Disassociation at the end of any loan, if requested.
  • Avoid making too many applications for finance. A large number of full searches recorded on your credit file could send warning signs to any potential lender.

Hand back the car if you’ve paid more than 50 percent

Helping to give you added flexibility if your financial situation deteriorates, with Hire Purchase you are legally permitted to cancel the finance agreement and hand back the car to the finance company provided you have already paid more than 50 percent of the total amount owed.

Be aware, though, that if you haven’t reached the halfway point you will have pay the difference before you can leave the finance agreement. Known as Voluntary Termination, these rights mean that should you need to cut costs or find yourself unable to meet the monthly repayments, you are able to hand the car back and walk away with nothing left to pay – provided the car is in good condition.

Be wary of ‘guaranteed’ finance

While a number of companies claim to offer ‘guaranteed’ finance, these may come with extortionate interest rates that see you paying a huge premium for the privilege of borrowing money. 

Knowing that you will be approved might offer you peace of mind, but the more interest you have to pay, the more likely you are to have problems meeting the monthly payments. Don’t be swayed by the promise of ‘guaranteed’ offers – make sure to compare the APR rate with alternatives to see which offers you better value.

Find out how much you can afford to borrow with our finance tool.

Want to read more about car finance? Click on the links below:

Bad credit? Try leasing

What is Hire Purchase?

Car finance vs getting a loan

PCP car finance: can I get out early?

Car finance: which option is right for you?

Calculating car finance: how to get the sums right