Could I get car finance?

Spread the cost of a vehicle with monthly instalments: check out your chances of getting car finance

BuyaCar team
Mar 11, 2019

From the days when "cash was king", car finance has now become the overwhelmingly popular way to buy new cars.

In 2018, nine in ten brand new models were biught using a form of finance, according to the Finance and Leasing Association, the trade body.

Its popularity is surging amongst used car buyers too, with more than 1.4 million used cars being bought on finance in the 12 months to August - a rise of seven per cent.

Applications are based on three main criteria: the car you’re buying, your credit history and whether the payments are affordable. We’ve set them out in more detail below

The last bit is most important: if you can show that the payments are affordable, then there’s a reasonable chance of getting finance. A strong credit history will help you to get the lowest interest rate, but young drivers and those with previous missed payments may also be eligible.


Getting car finance: affordability

Being able to repay your car finance is the most important factor in being accepted.

Lenders are obliged to take this into account and will take it seriously, as it’s in everyone’s interest that a finance agreement is affordable. It makes it more likely that a lender will be repaid and that a customer keeps their car for as long as they expect.

Finance firms assess a customer’s ability to make repayments without getting into financial difficulties, and while meeting other essential commitments. These typically include items such as rent or mortgage repayments, food costs and household bills.

It’s possible to adjust monthly payments by increasing the deposit or extending the agreement (from three to four years, for example), but this may not be the best option for all customers. In some cases, a cheaper car or a different type of finance arrangement may be a better option.


Getting car finance: credit score

Credit scores, or profiles, are designed to estimate the likelihood of any individual repaying a loan, so they have a big influence on whether you are accepted for finance and the interest rate that you’re offered.

They are based on your history of finance and loan agreements, as well as your current status. These factors are then crunched into a single number that is used to assess finance applications. The higher the number, the better the score and the more likely you are to be accepted for finance at a low rate of interest.

Your credit score can be boosted if you have a record of borrowing money and repaying it on time. As well as loans, this can include credit cards.

On the other hand, regular missed payments will lower your score. Loan defaults and county court judgements will have a severe effect on your rating.

Your current situation has a large impact on your credit score because lenders value stability. If you are listed on the electoral roll, have remained at one or two addresses for several years and have a steady job, then this will be reflected in a higher rating.

Making several finance applications over a short period of time can lower your score because it can seem as if an applicant is desperate for a loan, which raises alarms.

This doesn’t mean that you can’t compare quotes, though. Lenders are able to carry out a so-called soft-search, which can estimate your chances of being accepted, and the interest rate that you’ll be offered, without affecting your credit profile.

Lots of unsuccessful finance applications may affect your score too,

Credit scores will also take into account your current situation, as lenders value stability. So if you are listed on the electoral roll, and have remained at one or two addresses for several years and have a steady job, then this will be reflected in a higher credit score.


How your car affects your finance options

Virtually any car can be bought on finance but - depending on its age, you may not find that all options are available to you.

Most cars are available with Hire Purchase (HP) or Conditional Sale finance. It’s easy to understand: the cost of the car is split up into a series of equal monthly payments - plus interest - along with any deposit. Once all payments are made, the car is yours.

However, the most popular type of finance is Personal Contract Purchase (PCP), which offers more flexibility and lower monthly repayments. That’s because your repayments don't cover the full cost of the car - just the difference between the price when you buy it and its predicted value at the end.

Once you’ve made your final monthly instalment, you can hand the car back and get another one, or buy it for its remaining value.

Because it’s difficult to estimate the future values of older cars, lenders rarely offer PCP on vehicles that are more than five years old.

One other option is leasing, which isn’t really car finance: it’s long-term car rental, where you make fixed monthly payments and then return the car at the end. It’s normally only offered on brand new cars.


Getting car finance with no deposit

If you don’t have the immediate funds to put down a deposit on a new or used car, it’s normally possible to take out no-deposit finance.

This will often mean that you can take delivery of your car and have nothing to pay for a month.

You’ll generally need a high credit score to be eligible for no-deposit finance and you’ll need to be able to afford the monthly payments, which will be higher than if you had put down a deposit.

It’s likely that you’ll pay more in the long run because you’ll be borrowing the full value of the car, increasing the amount of interest that’s payable. Making a deposit reduces the amount of money that you borrow.


Getting car finance with poor/bad credit

A poor credit rating doesn’t necessarily mean that you’ll be refused finance, but you may have to pay a higher interest rate.

As with all types of finance, you’ll need to be able to show that the repayments are affordable under your current circumstances.

It also helps to have a bigger deposit, which may mean that more lenders are willing to offer finance, potentially reducing the interest rate that’s available.


Getting car finance as a young driver

Without much experience of borrowing and repaying money, it can be difficult for young drivers to build up their credit score.

Some lenders are willing to lend based on a limited credit history - as long as repayments are affordable.

Guarantor finance is often a possibility too. Parents can guarantee the finance agreement, becoming liable for payments if a young driver fails to make them. This can open up lower interest rates.


Getting car finance without a permanent job

Lenders don’t require a steady monthly salary for finance, and are used to considering applications from freelance workers, or those with multiple jobs.

You’ll still need to demonstrate a regular level of income that will cover your finance repayments and essential outgoings.


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