You have probably already had a rejection or read advice that only applies to people with perfect credit. But thousands of drivers successfully secure an agreement every single month, despite poor credit scores.
The key is not fixing your entire credit history. It is understanding how bad credit lenders actually make decisions, and knowing the small and simple steps you can take to get approved.
Types of Bad Credit Car Finance Options
Hire Purchase
This is the simplest and most accessible bad credit car finance option for most people. You put down a small deposit, make fixed monthly payments for an agreed term, and you own the car outright at the end of the agreement.
Personal Contract Purchase
PCPs usually have the lowest monthly payments of any option. You agree to a maximum mileage and a fixed balloon payment that you will pay at the end of the term. You can pay the balloon to keep the car, hand it back with nothing more to pay, or upgrade to a newer car.
Specialist Personal Loans
These are an option if you want to own the car straight away. The loan is unsecured, so the lender does not own the car at any point, and you can sell it whenever you want. Approval rates are slightly lower than HP, but still far higher than loans from high street banks.
Guarantor Car Loans
This option lets you use a friend or family member’s good credit to back your application. If you cannot make a payment, your guarantor agrees to cover it. This will usually get you a much lower interest rate than any other bad credit option, and approval is almost guaranteed if your guarantor has good credit and stable employment.
Dealer Finance
Dealer finance is arranged directly through the car lot you are buying from. Many dealers have dedicated arrangements with bad credit lenders and can often get approval for people who would be declined everywhere else. This is usually the fastest way to drive away the same day.
Secured Loans
Secured loans let you use an existing asset you own, such as another car, as security against the loan. This will get you the lowest possible interest rate available for bad credit, but you do risk losing the asset if you cannot keep up with payments.
You can get loans for bad credit online from direct lenders. They will give you a full decision in minutes without leaving a permanent hard search on your credit file. You also will not have to go through a broker or middleman who adds hidden extra fees onto the total cost of your agreement.
| Car Finance Types for Bad Credit Borrowers | ||
| Finance Type | Ownership | Monthly Payments |
| Hire Purchase (HP) | Yes (after final payment) | Moderate |
| Personal Contract Purchase (PCP) | No (unless buy) | Lower |
| Personal Loan | Yes (immediate) | Fixed |
| Guarantor Loan | Yes (immediate) | Lower rates |
| Secured Loan | Yes (immediate) | Competitive |
Preparing Your Application For Success
9 out of 10 bad credit finance declines have nothing to do with your credit score. They happen because of easily fixed mistakes on your application.
- Step 1: Check your full credit report 3 months before you plan to apply. You do not need to pay for this. Look for any obvious errors or old entries.
- Step 2: Make sure you are registered on the electoral roll at your current address. Most lenders score check first, and it will get you an extra 200 points on every credit score.
- Step 3: Gather 3 full months of bank statements before you apply. Make sure all of your income and regular payments are clearly visible.
- Step 4: Collect your most recent 3 payslips and your latest P60. You will need these for every application.
- Step 5: Get one recent utility bill dated within the last 3 months as proof of address.
- Step 6: Pay down any small existing debts if you can before you apply.
- Step 7: Never make multiple finance applications in two weeks. Every hard search stays on your file for 12 months.
Smart Money-Saving Tips For Bad Credit Finance
Most people with bad credit accept the first offer they get, and end up paying thousands of pounds more than they need to over the term of the loan. You always get quotes from 3 or 4 different lenders before you accept any offer. The rates can vary by as much as 15% between different providers for the same loan.
Negotiate whether you put down a larger deposit for lower monthly payments or a smaller deposit for higher payments. Always check that your agreement has no penalty for early settlement. This lets you pay off the loan early at any point with no extra fees, and can save you thousands of pounds.
Never take the payment protection insurance that the lender will offer you. It is overpriced, and you can buy the same cover separately for a tenth of the cost.
Consider a shorter loan term, even if it means higher monthly payments. You will pay a fraction of the total interest over the term of the loan. Always shop for car insurance completely separately. Never take the insurance from the dealer or lender.
Negotiate the final price of the car before you mention anything about finance. They will never move on the price of the car if you tell them you have financing agreed first.
Building Better Credit For The Future
This car finance agreement is not just a way to get a car. It is the single best and fastest tool you have to completely fix your credit score over the next few years.
Set up a direct debit for your monthly payment so it can never be late. One late payment will set back your credit progress by 6 months. You can keep the total balance on all of your other credit cards and loans below 30% of their limit.
Do not close any old credit cards, even if you do not use them. Old open accounts improve your credit score. You can register for free credit monitoring so you can see your score improve every month.
There are also a few small extra things:
- Never take out any other new credit for the first 12 months of your agreement
- Once you have made 6 on-time payments, ask your lender to review your interest rate
- Do not settle the loan early in the first 18 months unless you absolutely have to
- Check your credit file once every 3 months for any new and unexpected entries
Conclusion
You don’t have to have an immaculate credit score to secure a decent car. You also don’t need to pay a ridiculous rate of interest or get a bad deal. You do one thing at a time, follow the steps below, and before you know it. You can decide at the end of the week if you begin today.
