How does my credit score affect car finance applications?
Brokers, dealerships and lenders will look at all sorts of things when assessing your car finance application. It’s not limited to your credit score.
Just like with all credit applications, factors include:
- Your affordability
- Your existing debt agreements
- Your stability - particularly around your address
- Your credit history
Your score isn’t the be-all and end-all, but it can flag up past issues with lending, such as missing payments or paying late. Unfortunately, this doesn’t look great when applying for credit.
There are lots of different brokers and lenders out there, including brokers (like us) that specifically find car finance for those with poor credit.
It’s a case of doing your research to find one you think might suit your circumstances. It’s a good idea to look online to get an idea of your options, you can use a car finance calculator to find out how much you’re likely able to borrow.
Bear in mind though, your credit score is likely to impact the interest rate you’re offered - lower rates tend to be reserved for those with higher scores. Depending on how bad your score is (and why), it’s also worth considering if you can afford to add another priority bill to your monthly repayments, or not. Not keeping up with repayments will damage your score further.
How do I apply for car finance with a bad rating?
You will apply just like everyone else, but there is one crucial step we wouldn’t recommend missing out: using an eligibility checker or calculator.
These check your likelihood of approval (and calculators can tell you for how much) before you submit your application and run a hard search.
For those with a poor credit rating, it could be a good idea to check your eligibility online rather than in-person at a dealership, where you may not have the option for an eligibility check first. You can also find sources online that specialise in bad credit car finance applications, which should increase your chances of acceptance.
Can I add a guarantor to my application?
Yes, this is an option, but it definitely depends on the dealer, lender or broker. It’s up to the company lending if they want to allow guarantor car finance deals, so it may not be an option everywhere.
Don’t let that put you off though, there are plenty of options that allow this. The most likely scenario is a guarantor personal loan, that you then use on a car. Do your research online specifically for guarantor car finance deals. You can use our car finance calculator, as our partner CarFinance247 does consider all circumstances, including guarantor options.
A guarantor co-signs the agreement with you and is responsible for your repayments if for any reason you can’t make them.
How can I improve my chances of being approved?
Check your credit report
While it’s not the only factor, it is worth ensuring your credit file is in tip-top shape before you apply. Some simple things could be holding you back. Check your report for free (for life) with CredAbility. Unsure what to look for? Start with these three, simple checks:
- Are you registered on the electoral roll? - This shows proof of address to lenders and can improve your credit score quickly (by about 50 points!)
- Look for mistakes - this can be errors in your name, address or accounts. Check for consistency and ensure they’re correct. If you spot something, contact the credit agency to get it fixed.
- Register on the Rental Exchange Initiative - this is for renters, who can have their regular, on-time rent payments count towards their credit score.
Discover 45 ways to improve your credit score in the short-term and the long-term.
Increase your deposit
If you’ve got a decent deposit but your score isn't ideal, you could see if increasing your deposit improves the result. Ask the dealership you’re speaking to, or try entering a different deposit amount on an online car calculator.
Do your research and find a specialist
If you’re really worried about your score being a problem and it’s particularly low, you could specifically seek out a specialised online broker or lender.
Or you can look at services like ours, who consider all circumstances, including those with thin credit or a poor credit score.
Look at all options
Consider all your car finance options. You could find that it’s difficult for you to get a personal loan to buy a new car, but something like a Hire Purchase could be an option. With Hire Purchase, the car is taken off you if you miss a repayment, so there is less risk for the lender, meaning they may be more willing to approve your application.
Consider a guarantor loan
You can consider getting a guarantor to go on the agreement with you. This needs to be someone with a good credit score, who agrees to cover your repayments if you’re unable to.
What alternatives to car finance are available to those with bad credit?
If you’re unsure about your options, you could consider these alternatives to car finance:
- Buying outright - if you have the funds, you could buy outright. This is more popular for used cars and private sales.
- Secured loan - if you’re a homeowner with equity in your property, you have the option of a secured loan to buy a new car. This is a loan secured against your house, so not keeping up with the repayments can put your home at risk.
- Personal contract hire - this is a long-term car rental agreement, so you never own the car. As it’s not technically credit, you can often get this arrangement without a credit check - however, you do often need to put down a deposit.
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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 21.9%, an annual interest rate of 21.9% (Fixed) and a deposit of £0.00, the amount payable would be £172.09 per month, with a total cost of credit of £3,825.54 and a total amount payable of £10,325.54. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender. **See our cashback offer T&Cs