Does debt consolidation affect buying a car?

If you have outstanding debt (whether consolidated or not), you will still be able to buy a car outright with savings. However, if you need car finance, you may find this more difficult with debts to your name. Having said that, lenders look at a range of factors when considering your application, and there are steps you can take to improve your chances of success.

6 min read
woman driving car

Buying a car with debt  

Buying a car in cash when you have debt is straightforward because you’re paying for the car outright without needing to borrow money to pay for it. Having said this, you should prioritise repaying your debts anyway. Think about whether you need the car before making an expensive purchase such as this.

If you’re looking to buy a car on finance when you have debt you might find it more difficult than somebody who doesn’t have debt. That isn’t to say that you won’t be able to buy a car – financial companies consider a range of eligibility criteria. 

One thing to think about is your debt-to-income ratio. This is essentially how much you earn versus how much money you owe and is usually expressed as a percentage. Lenders use this to decide whether you’re in position to take on more debt. So, you should try and keep it low if you want to take out car finance.

Does debt consolidation help your credit?  

Debt consolidation can either help or harm you credit score depending on how you go about it and if you make your repayments on time and in full.

How debt consolidation can help your credit score

It can help if it means you:

1. Repay your debt sooner

Consolidating your debt gives you the chance to find a deal with lower interest rates and potentially take out a shorter repayment plan. This will help your credit score to improve.

2. Reduce your credit utilisation ratio

Your credit utilisation ratio relates to how much of your total available credit limit on your overdrafts and credit cards you have used. If you have maxed them out this can be a red flag to lenders. But if you clear them using a loan, your ratio will decrease, which should work in your favour.

3. Make your repayments on time and in full

Slowly erasing your debt by sticking to your repayment plan means your credit score will improve over time.

How debt consolidation can harm your credit score

It can harm you score if it means you:

1. Extend the term of your credit agreement

You could pay more in interest in the long run if consolidating your debt leads to a longer repayment term.

2. Don’t make your repayments on time and in full

If you don’t meet your repayment plan for your debt consolidation product your credit score will get damaged. You also risk incurring late fines and even legal action from your creditor (as a last resort).

3. Overextend yourself financially

This can lead to you missing repayments, which can knock points off your score

What other factors do car finance providers consider? 

Creditors don’t just look at how much debt you have when deciding whether to lend to you. There are a range of eligibility criteria which vary from one financial company to the next. Let’s take a look at some of the common factors:

Valid driving licence 

When you apply for car finance, you’ll probably need to provide your driving licence as proof of ID and to show that you’re eligible to drive. They’ll most likely check with the DVLA whether your licence is authentic.

If you’ve misplaced your driving licence, some lenders might accept other forms of ID and check this against the DVLA’s records instead.


Car finance providers check your affordability – this is whether you can afford the repayments. They’ll compare your income to your expenditure (e.g. rent, mortgage, bills and any other regular repayments) to see if there’s room for car finance on top.

You can increase your chances of passing an affordability check by following these four steps:

  1. paying off (or reducing) your existing debts
  2. not taking out any new credit
  3. not making any other credit applications immediately before applying for car finance
  4. paying your bills on time, every time

Payment history 

Your payment history is essentially a record of all the payments you’ve made, and whether you’ve paid on time. Any missed payments for bills or credit will be noted on your credit report. A bad credit history can make car finance providers wary about lending to you.

You can avoid leaving negative footprints on your payment history by making all your payments in full and on time and not overextending yourself financially.

Credit score 

Car finance providers conduct a credit check when they review your application. They review your credit score to see how risky it'd be to lend to you. A low credit score means you’re less likely to be offered the best rates, or your application may be denied.

You can improve your credit score to make it easier for you to get car finance by:

  • reducing your debt
  • registering on the electoral roll
  • not making multiple credit applications
  • only sharing financial products with somebody who has a good credit score
  • correcting any mistakes on your credit report

Electoral roll 

It’s likely that car finance providers will check to see if you’re on the electoral roll because they’ll want to know how easy it would be to contact you (if you fall behind with payments, for example).

If you’re not on the electoral roll, they might ask for additional documents to prove you’ve been at your address for a certain length of time. A stable address will make you come across as more reliable, which should work in your favour when it comes to getting accepted for car finance.


If you’re applying for car finance with a guarantor, the car finance provider will take their credit score into account (as well as your own). Finding a guarantor with a good credit score can greatly increase your chances of getting approved for car finance if you have a bad credit score yourself.

However, using a guarantor is a serious decision because they become jointly responsible for the repayments. If you stop making repayments the lender can chase them for the money as well as you, which could damage your relationship with them.

It can also damage their credit score, as well as your own. So you and your proposed guarantor should carefully consider the pros and cons before making a decision.

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