Poor credit car finance

How to pay for a car in monthly instalments, despite a low credit score: poor credit car finance

BuyaCar team
Apr 5, 2019

Applying for car finance with poor credit can make it feel like you’re being punished twice.

Not only are some options closed to you, but interest rates are higher too.

It’s all down to the way that credit ratings are used by lenders to assess risk: if you have a mixed financial history, or no previous borrowings at all, then you may be seen as a likely candidate to default in the future - and so the cost of borrowing increases.

In many cases, this is unavoidable, but there are ways of cutting the cost of car finance to make it more affordable.

In other situations, you may be able to improve your credit rating to access lower interest rates.

In any case, lenders will check to ensure finance is affordable before approving an application. Read on for more information on poor credit car finance and improving your rating.


Poor credit car finance: the options

You may face higher interest rates, but the finance options available with bad credit are generally the same as for customers with a higher score.

However, you’ll normally have to discount the representative interest rates that are published: bad credit will usually mean you’re quoted a higher rate.

Other options may also be unavailable, such as no-deposit finance.

Personal Contract Purchase (PCP) finance is popular because of the low monthly payments, which only cover the value that the car is expected to lose during the agreement.

It means that you can return the car at the end without anything else to pay, apart from mileage and damage penalties, which may apply.

You also have the option of buying the car at the end, either by paying in cash or refinancing. The cost is usually fairly high as it’s roughly equivalent to the car’s value.

However, you’ll sometimes find that the car ends up being worth more than the final cost of buying it. If you trade it in, the difference can be released and put towards your next vehicle or returned to you.

Hire Purchase finance is designed for long term car ownership. The price of the vehicle is divided into a series of equal monthly instalments (minus any deposit). Once you’ve made the final payment, the car is yours.

Banks also offer loans to fund a car for borrowers with poor credit.

It's worth looking at all of your options, and working out the best deal for you. Many retailers, including BuyaCar, use a panel of lenders to increase the chances of getting a competitive quote.

Cut the cost of poor credit car finance

Your car

The cheaper the car, the less you’ll pay - it’s an obvious point, but not the only factor to consider.

Because PCP finance repayments are based on the value that the car loses during the agreement, monthly payments tend to be lower for cars fall in value slowly (such as the Mini Hatchback, above). You’ll often end up paying a bit more interest in this case, though.

Agreement length

The monthly repayment price will often determine whether a car is affordable or not. You can often reduce this by extending the length of the agreement - typically up to five years.

However, be aware that this means you’ll be borrowing for longer, increasing your interest payments. And if you’re on a high rate, the extra money could be substantial.

You can compare the overall costs of a quote by looking at the “total amount payable”.


If you have the savings, and can afford to do so, putting down a large deposit is often a good idea. Not only does it reduce your subsequent monthly payments, but you’ll also pay less interest, as you’re not borrowing as much. Higher deposits can also result in a reduced interest rate.


Poor credit car finance for young drivers

Young drivers can often find themselves with a poor credit score, simply because they don’t have a great deal of history.

They could have had several recent addresses, only recently got a permanent job and may not have borrowed any money before.

Finance companies can be uncertain about the risk of lending to them, and increase the interest rate - or refuse to offer finance at all.

Guarantor finance is designed to overcome this, by using a family member as a guarantor, who is responsible for making payments if the borrower fails to do so.

This means that the finance quote is based on the guarantor’s credit score.

This type of finance is not designed for customers with a history of bad credit.


Improving a poor credit score

It may be possible to improve your credit score with a few easy steps: the first is to ensure that you’re registered on the electoral roll, as this indicates to lenders that you;re in a stable situation at your current address - an indicator that you’ll be a lower-risk borrower.

Borrowing money can also boost your score if you haven’t done this previously. Taking out a credit card and making the required payments will show that you can manage regular repayments.

Other factors that are taken into account, which may not be quite as simple to change, are living at one or two addresses for several years and having a permanent job or steady self-employed income.

County Court Judgements, defaults or large numbers of missed payments will have a severe impact on your credit rating, so rebuilding your profile will usually take time.


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