What's the best car finance option for bad credit?

Choosing the right car finance option can feel overwhelming, especially if you’ve got a less-than-perfect credit history. With so many terms floating around, like PCP, HP, and personal loan, it’s important to know what they all mean and which one suits your situation best.

In this guide, we’ll walk you through the different car finance options, explain how each one works, and help you decide which could be the best fit if you’ve got bad credit.

What are the main car finance options?

There are three main types of car finance available in the UK:

• Hire Purchase (HP)
• Personal Contract Purchase (PCP)
• Personal Loan

Each has its own structure, pros and cons - and depending on your credit history, one might be more suitable than the others.

What is HP car finance?

Hire Purchase (HP) is one of the most straightforward car finance options.

• You (usually) pay a deposit. 
• The remaining cost of the car is split into fixed monthly payments.
• Once the final payment is made, the car is yours.

There’s no large balloon payment at the end - just consistent repayments to suit your schedule. This makes Hire Purchase ideal for those who want to own the car outright and spread the cost over time.

HP is often a preferred option for those with bad credit, as the lender’s risk is lower (the car acts as security). Because of this, lenders may be more likely to approve applications compared to other finance types.

What is PCP car finance?

Personal Contract Purchase (PCP) is a more flexible type of finance, and it's often advertised for newer vehicles.

• You pay a deposit
• Make lower monthly payments compared to HP
• At the end, you choose whether to:
• Return the car
• Pay a balloon payment to keep it
• Part exchange it for another

Because of the optional final payment (the "balloon"), you're only paying off the depreciation during the agreement, not the full value of the car.

What is PCP car finance good for then? It’s ideal if you want lower monthly payments and the option to change your car every few years - but it might not be the best option if you’re looking for outright ownership.

For people with bad credit, PCP can be harder to get approved for. Lenders often require a better credit rating due to the higher risk and value of the final payment.

What is a personal loan?

A personal loan from a bank or lender allows you to borrow a lump sum to buy a car outright. You then repay the loan in monthly instalments over an agreed term.

• The car belongs to you from the start
• You can sell or modify it whenever you like
• There's no mileage restriction

However, personal loans are unsecured - meaning there's no asset backing the loan - so lenders tend to be more cautious. If you have a poor credit score, approval can be more difficult, and interest rates may be higher.

Which type of car finance is best for me?

There’s no one-size-fits-all answer – it depends on your circumstances and preferences. Here's a quick comparison:

If your goal is to own the car and you’re working with a limited credit profile, HP is usually the most accessible and predictable route.

What car finance option is best for bad credit?

For those with a poor credit score, Hire Purchase is often considered the best choice. Here’s why:

• Typically easier to get approved when compared to PCP or personal loans
• You’ll know exactly what you’re paying each month
• No large final payment to worry about
• You own the car at the end

Some lenders, like us at First Response Finance, specialise in car finance options for people with bad credit. We assess your affordability and personal situation, rather than just your credit score.

How should I choose my car finance provider?

When comparing lenders, especially if you’ve got bad credit, it’s worth considering more than just the monthly payment amount. Look for:

✔️ Specialist lenders - companies that understand poor credit histories and assess applications individually.
✔️ Clear terms - make sure the agreement is easy to understand, with no hidden charges.
✔️ Soft search tools - these let you check your eligibility without affecting your credit score.
✔️ Good reviews - independent feedback from other customers can give a clearer picture of what to expect.

If you're unsure where to begin, try using a finance calculator that shows your potential monthly cost based on your credit band. It’s a good way to explore your options before applying.

If you’ve been struggling to get finance due to your credit history, you’re not alone - and the good news is that car finance options are available for people in all kinds of situations.

While PCP car finance can be appealing for low monthly payments, it may not always be accessible if you’ve got bad credit. In comparison, Hire Purchase car finance is often more straightforward, predictable, and better suited for those working to rebuild their credit profile.

At First Response Finance, we’re here to help. Whether you’re looking to understand what a hire purchase agreement is, compare different car finance options, or simply get back on the road, we’ll do our best to find a finance solution that works for you.