Working towards life’s big purchases can be a bit of a struggle when you’ve got a poor credit history. When it comes to getting car finance with bad credit, your credit history can provide a stumbling block with a lot of conventional lenders, but that doesn’t always mean securing a loan is out of your reach altogether.
While you don’t need to be an expert on the world of credit and finance yourself, it will certainly help if you know the basics of how to possibly secure a car loan with poor credit.
With that in mind, we’ve put together this useful guide on getting car finance with bad credit. It may help you to understand the best route to securing a car loan now, as well as offering tips on improving poor credit that may benefit you in the future.
Why have I been declined credit elsewhere?
When you apply for a loan, your chosen lender will look to your credit history for evidence of your financial behaviours and whether you can be deemed a sound enough prospect to lend to. It’s worth remembering that every decision made on an application is done to the standards of the individual lender in question, and may vary from lender to lender.
That means there is no set pass or fail, at an industry level, when it comes to credit history. You can get an indication of how your credit history might be seen thanks to a credit referencing agency (CRA) app like Experian, TransUnion or Equifax. But it is important to remember that each lender is likely to have their own criteria they base their decisions on.
Here are some of the main reasons why you might have been refused car finance in the past:
Declines relating to poor credit
- Your credit file is not substantial enough
- You have late or missed payments on record
- You’ve made multiple applications for credit in a short space of time
- You have a financial association with someone who has a poor credit file
- You have an outstanding County Court Judgement (CCJ)
- You have an outstanding Individual Voluntary Agreement (IVA) or Debt Management Plan
Declines outside of poor credit
- You’ve not met a specific lender’s requirements, for example a low income
- Administrative issues such as identity and address confirmation or an error on the application
- You aren’t the target customer for their finance products
Check out Experian’s analysis on declined credit for more detail.
Tips on improving poor credit
Now you know why you might have been declined; the next step is to figure out how to try to increase your chances of being approved next time.
While you might not be able to solve all of your credit worries immediately, making moves now to help improve your credit file will be helpful for an easier life in the long term when it comes to getting access to credit.
The benefits of improving your credit score
The main reason you should want to improve your credit score is that it could improve your ability to access credit in the future. We’ve already established that many lenders will only want to work with customers with good credit files. So, improving your score could enhance your chances of acceptance for things like a mortgage and car finance, as well as offering additional benefits.
Your four main reasons to improve your credit score are:
- Higher chance of acceptance on key financial applications
- Access to lower interest rates
- Access to higher credit limits
- Access to improved offers
What are the easiest ways to improve your credit score?
We’ve got a whole page discussing how you could improve your chances of car finance with poor credit.
When it comes to generally improving your credit score, there are a number of things you can do:
- Ensure your credit file is accurate and if not, request your file is corrected
- Make repayments on time and clear any outstanding debts
- Clear any CCJs
- Register on the electoral roll
- Avoid links to others with poor credit
- Keep your credit utilisation low
- Check for any fraudulent activity on your record
MoneyHelper also offers some excellent tips for improving poor credit, including some further detail on subjects like the ones mentioned above.
What credit score should you aim for?
Every CRA scores differently, so there is no set answer to this question. Instead, we can look at the “fair” and “good” score brackets of the big three CRAs — TransUnion, Equifax and Experian.
- TransUnion score from a range of 0-710. A “good” score is considered to be 604-627, while a “fair” score is 566-603.
- Equifax score from a range of 0-700. A “good” score is considered to be 420-465, while a “fair” score is 380-419.
- Experian score from a range of 0-999. A “good” score is considered to be 881-960, while a “fair” score is 721-880.
Remember, your credit score is merely an indicator of how lenders are likely to perceive you, not a definite threshold of whether you’ll be approved for car finance.
How to secure car finance with bad credit
While you’re setting yourself up for the future with the information above, what if you need a car now? If you’re looking at car financing for less-than-perfect credit, make sure you’ve considered the process carefully.
What are my options?
Applying for car finance with a less-than-ideal credit history means you may be declined by a number of standard lenders. Instead, you’ll want to find a specialist lender who could offer you the help you need.
Typically, to negate the risk attached to lending to someone with a poor credit file, a specialist car finance lender may use a hire purchase deal, where the finance is secured by the car itself. Then, like any other finance deal, you’ll make the monthly payments on the car alongside the interest rate you agreed up front with the lender. Hire purchase deals mean if you can’t keep up with repayments, the car could be repossessed — but this will be a last resort.
Primarily, you need to find a lender who will cater to those with:
- Low credit scores
- CCJ defaults
- Payment arrears
- Outstanding IVAs
- Previous bankruptcy