How to get car finance with bad credit

How to get car finance with bad credit 

Getting approved for car finance with bad credit can feel like an uphill battle. Many people with less-than-perfect credit scores find themselves feeling excluded from the traditional options. But it's important to remember that this doesn't mean you're out of luck. You can get car finance with bad credit. In fact, there are several pathways available to help you. 

Bad credit can be the result of many financial challenges, from late payments and defaults to a history of missed bills. The good news is that it doesn't have to mean the end of your chances of finding the vehicle you want. In this guide, we'll break down the process of how you can get car finance with bad credit, explore various options and offer tips on improving your chances of approval.

Understanding bad credit and its impact on car finance 

Before we get into the details of whether you can finance a car with bad credit, let's first get a handle on the basics. 

What is bad credit? 🤔

Bad credit typically refers to a low credit score, which is a numerical representation of your financial history. A low score often results from missed or late payments, defaults, bankruptcies or high levels of existing debt. There are three main credit reference agencies in the UK - Equifax, Experian, and TransUnion. They each use a slightly different scoring system, but anything under 560 is generally considered poor. 

Why bad credit affects car finance 📉

Lenders use your credit score as an indication of your ability to repay loans. A low score suggests to them that you may be a higher risk, which is why it can impact your car finance options. And a low score may result in higher interest rates, stricter loan conditions or even outright rejection of your application. However, some specialised lenders cater to people with bad credit, and understanding where you stand with your score can help you identify the best route for you.

Common myths about whether you can get car finance with bad credit 🚗

There's lots of misinformation when it comes to this subject and it's important that you're able to separate fact from fiction. Jonathan, Head of Sales at First Response Finance, is here to offer some clarity. He says: 

"One common misconception is that people with bad credit can't get any financing at all. While it is more challenging, many people with poor credit scores successfully secure car loans. Another myth is that all loans for bad credit come with exorbitant interest rates. While rates may be higher, it's still possible to negotiate better terms if you shop around and explore the right options."

How to get car finance with bad credit: your options

Having poor credit doesn't automatically mean you've got no chance of being approved. There are routes that could be open to you, but you need to be clear on how they all work and whether they're going to be suitable for your situation. 

Specialist lenders

Certain lenders may specialise in providing financing to those with bad credit or offering products in a certain area - like us with car finance! A specialist may be more flexible when it comes to approving loans. While interest rates might be higher than traditional lenders, they may offer an option for people who are struggling to find finance elsewhere. 

Joint finance

Adding a joint applicant could increase the chances of your car finance application being approved, especially if you have a poor credit score and their credit file is better than yours - both the applicants' current circumstances and income are taken into consideration when a decision is made on the approval.

Secured loans 

With a secured loan, you offer the car you're buying (or another asset) as collateral. This reduces the lender's risk because if you default on the loan, they have the right to seize the asset. These types of loans are often easier to obtain, even with bad credit, because they provide a layer of security for the lender. 

Dealership financing

Many car dealerships offer their own financing options, sometimes working with lenders who specialise in bad credit loans. While this might be a convenient route, it's important to compare the rates and terms against other financing options. Dealerships may offer financing with higher rates, and sometimes their terms might not be as favourable as those available through sub-prime lenders or personal loans.

Personal loans 

While not specifically for car purchases, personal loans from a bank or online lender can be used for this purpose. However, they often come with higher interest rates for people with poor credit, and they don't always offer the same flexibility as a traditional car loan or sub-prime loan.

How you can improve your chances of getting car finance with bad credit 

There are a few steps you can take that may increase the likelihood of your application being approved, even with bad credit:

• Check your credit report: look for any errors or discrepancies. A mistake on your report could be negatively affecting your rating. Meanwhile, understanding your credit score helps you know where you stand and what kind of loan offers you might expect. 
• Save for a deposit: a larger down payment can reduce the lender's risk and demonstrate your ability to manage finances. By putting down a significant deposit, you lower the amount you need to borrow, which can improve your chances of securing finance.
• Ensure stable income: lenders want to see that you have the ability to repay the loan. Providing proof of income and having a steady job will reassure them that you can afford the monthly payments, even if your credit score is less than stellar.
• Choose a reasonable loan amount: borrowing more than you can afford will make it more difficult to be approved. Be realistic about how much you need and choose an amount that fits your budget.

How to get car finance with bad credit: understanding the application process 

This will likely vary slightly depending on your lender, but here's a guide to help give you an idea of what to expect:

Documentation

You'll need to provide proof of identity, such as a passport or driving licence, as well as proof of income and address. You may also need to present bank statements or details about your current debts and financial situation.

The application steps 

The application process typically starts with an online form, where you'll provide some personal and financial details. If approved, the lender will make you an offer, and you can discuss the terms and conditions. Once you accept, you'll sign the loan agreement and arrange for payment.

Factors lenders consider

While your credit score is important, lenders also look at other factors such as your income, employment status, and existing debts. They want to ensure you can afford the loan repayments, so demonstrating stability in these areas can improve your chances.

Be prepared for a higher interest rate

You'll likely face a higher interest rate if you have bad credit, but this is something that can be negotiated. Don't be afraid to shop around and compare offers to find the best deal.

Tips for managing your car finance with bad credit

It's important to remember that your application being approved is only the start of your financial commitment. Here are some tips to help you keep on top of things:

• Stick to your budget: avoid stretching your finances too thin. Missing payments or defaulting on your loan can worsen your credit score and make future financing even more difficult. 
• Pay early or extra: if you have the means, consider making extra payments or paying off the loan early. This can reduce the total cost of the loan by lowering the amount of interest you pay. 
• Avoid missing payments: this can significantly damage your credit score and make it harder to secure future finance. Set up automatic payments or reminders to help stay on track. 
• Refinance later: if your credit improves, you may be able to refinance your car loan at a lower interest rate. This can save you money over the life of the loan and improve your financial situation.

Can you finance a car with bad credit? 

The simple answer is yes, you can get car finance with bad credit. 

And at First Response Finance, we've got more than 20 years' experience in offering exactly that. We know there's so much more to your situation than just your credit rating, and we don't think having a low score should make it impossible for you to get approved.

We offer bad credit car finance via Hire Purchase loans of £2,000 to £15,000 and you can use our simple calculator tool to get an idea of how much your agreement might cost. It's free, takes just a few moments, and has no impact on your credit score. 

If you want to take your application further, you can get a quote - all we'll need to get started are a few basic details. 

Our 'Insights and tips' are full of detailed, helpful guides just like this one, while our thousands of glowing reviews on Review Centre show exactly why we've been voted the UK's No.1 motor finance lender.