No credit check car finance

A loan with no stressful credit check may sound appealing, but can you really trust a firm that lends to you without checking your finances?

John Evans
Jul 15, 2021

Getting a loan for your next car with no questions asked might sound tempting. After all, you avoid all those awkward questions about your personal finances that traditional lenders pose, and the decision to lend to you is made almost instantly.

It's no wonder that some people are tempted along this path, but before you go down this route, take a moment to think; what kind of company would lend to you with no idea whether you can afford to pay the money back? What's in it for them?

If a company is willing to be that reckless with its own money, what other reckless - and potentially illegal - measures might it take to get the money back, if you haven't been able to meet the payments? With that in mind, before taking out car finance - especially if you haven't had to go through a credit check - ask yourself a few questions (and rest assured that all BuyaCar lenders are reputable and will make sure you can afford monthly payments before approving finance):

  • What's the lender’s trading name and address? Are they registered with the Financial Conduct Authority (FCA)?
  • How can the company lend to me without knowing anything about me or whether I can afford payments?
  • What is the interest rate, how much will the loan cost and is there any paperwork spelling out the contract?
  • Has the company asked to take my passport, driving licence or bank cards. If so, why would they do that?
  • Does the person or company seem reputable - am I comfortable dealing with them?

The first question is the most important since it will determine whether you should proceed any further. The FCA lists the details of all businesses authorised to lend money. You should establish exactly who you are talking to (their name and the name and address of their business) and check they are recorded on the FCA register. If they are then it’s safe to deal with them, although if you still feel uncomfortable speak to the FCA’s consumer helpline (0800 111 6768). The FCA keeps a list of what it calls clone firms - those pretending to be a legitimate lender.

If the company or individual you are dealing with is not registered with the FCA, it’s likely they are what is called a loan shark. These individuals or companies lend illegally, ask few questions and tell you even less, especially about how much the loan will cost you. In one recent case, someone who borrowed £500 had to repay £88,000. If you cannot pay, threats and intimidation, rather than a polite letter on headed paper, usually follow. You can report a loan shark anonymously through the Illegal Money Lending Team.

With all this in mind, make sure that you avoid loan sharks and suspect companies by choosing a reputable lender - even if that means you have to have a credit check. The worst thing a credit check will do is tell the lender that you can't afford to pay back a loan and decline you. That's far better than you taking out a loan that you can't afford and having the lender chase you for payment, with interest bills rapidly racking up - especially as some lenders that don't use credit checks may use violence or other illegal measures to get their money back. 

It's simple to check your credit score, with numerous ways to improve your credit score if it's not the best or build a credit score from scratch if you don't have much of a credit history. Six months spent improving your score so you're eligible for better value loans, or car finance with lower interest rates, could save you years of stress and financial hardship that could result from taking a loan with no credit check from a loan shark.

FCA-registered lenders - safe and fair

The alternative to a loan shark is a legitimate lender registered with the FCA. Getting finance through a reputable lender may involve a longer application process with a credit check that you may find daunting. However, the purpose of these isn't just to protect the lender, but to protect you too.

While filling in the paperwork may take a bit of time initially, going through this means that the lender can be confident you can afford to pay the money back and you can be confident that you know what you're signing up for. If anything doesn't make sense, always take the opportunity to ask for clarification - FCA-registered lenders have to deal with you fairly and transparently and have a responsibility to make sure that you understand what you're signing up for.

If there is a dispute with the lender, the Financial Ombudsman can help, too. One thing’s for sure, your £500 loan won’t cost you £88,000.

What does a car credit check involve?

Central to the way legitimate lenders operate is the credit check - the process that you may have been trying to avoid by resorting to a loan shark. There's nothing to worry about with a credit check, however. It protects you from taking on a mammoth debt that you can't afford to pay, just as it increases the likelihood of the lender getting its money back.

The purpose of a credit check is for the lender to establish your credit worthiness - in short, whether you can afford to repay them, based upon your past financial behaviour and your current financial situation. You should welcome it because it shows firms are responsible lenders and it forces you to consider how much you can afford to borrow without getting into trouble.

You may want to take out a £20,000 loan and be frustrated if the lender says no after a credit check, but it's better to be told that before borrowing money, rather than being given finance by a loan shark and then finding out that you simply can't afford the repayments or the spiralling interest charges that illegal lenders often charge. Just because you've been told that you can't get a loan for £20,000, that doesn't mean that you wouldn't be approved for a £15,000 loan, so there's no need to stress unduly.

As part of the check a lender will ask you for your address and details about your employment, salary, mortgage or rent payments and living expenses plus any existing loans you have and what the repayments are. You might find this intrusive, but the lender needs to know these details to gauge whether you can afford to make payments.

At the same time, the lender will run another check with the three major credit reference agencies. These hold details including your address on the electoral roll (assuming you are registered to vote), previous and current loan contracts and repayment performance, county court judgements (if you've failed to pay fines in the past) and financial links with other people (such as a partner with whom you share a bank account).

The agencies use this information to calculate a so-called credit score. Their precise methods and scorings differ but loosely speaking, the scores fall into five bands ranging from very poor to excellent. Those in the lowest categories will find it most difficult to get finance and have to pay the most interest (with the interest reflecting the higher risk to the lender).

In combination with the information you have provided and its own internal criteria, a lender refers to these scores when deciding firstly, whether to lend to you and secondly, at what interest rate and for how long.

Hard and soft car credit checks

When a finance company checks your credit score as part of a formal loan application, its enquiry is logged by the reference agencies as a so-called 'hard check', which leaves a mark on your credit history. In contrast, if you're shopping around for the best quote and to see which lender is likely to approve you for finance, it is best to get a 'soft check', which doesn't leave a mark on your credit history.

That's because making multiple loan applications makes it look as if you're planning to take out multiple loans and are in a desperate financial situation, and questions whether you'll be able to pay back any additional finance. As a result, carrying out many hard checks in a short period of time reduces your credit score, making it more difficult for you to borrow money at a good interest rate.

So, when comparing finance costs, make sure to go for a soft check, as this doesn’t harm your credit score, but gives you an indication of the finance options available to you and the likely interest rates and charges.

It’s a much less formal process in which the lender establishes whether you’re likely to be eligible for certain deals or offers. It is not tied to a formal application and the search cannot be seen by other lenders. To be on the safe side, tell the lender you want them to make a soft check when simply getting quotes. BuyaCar offers a handy finance eligibility checker that has no impact on your credit score.

Don’t fear the credit check

A credit check is a lender’s way of establishing your future borrowing behaviour based on your past performance. Insisting upon a credit check is the responsible thing to do and because it’s carried out by an authorised, FCA-registered lender you can be sure the loan terms it eventually offers you reflect your position and are within the law.

Even if a credit check reveals you have a poor credit score, you should still be able to borrow money, so having a poor credit score is no reason to resort to a loan shark. Just because a loan shark will give you money does not mean they can be trusted, as they could charge you thousands more than a loan from a reputable source would cost, and use illegal threats or violence to extort that money from you if you fail to keep up with their demands. Read about poor credit car finance options here.

The difference between you and someone with a better credit score is that you will pay a little more for the privilege - through higher interest charges. As a guide to how credit scores can affect repayments, choose a car from the BuyaCar search tool and then use the finance calculator at the bottom of the individual car page. You can scroll between four credit rating bands and see how payments rise and fall.

The important thing is, thanks to lenders’ ability to vary their loan rates and accommodate for most borrowers, there should be no reason to resort to a loan shark. Yes, you might not like the idea of having to pay slightly higher interest rates due to your low credit score, however you can be sure that unregistered lenders offering illegal loans are not going to follow the rules when it comes to charging fair interest rates.

Get your finances in order

While you might not like the result of a credit check, there are things you can do to improve your credit score. These are not immediate, but over six months or so, you should be able to notably improve your score and boost your eligibility for better value loans and finance deals.

They include making sure you’re on the electoral roll - meaning you're registered to vote - settling up and closing outstanding loans, if possible, including credit cards, and closing dormant bank accounts. You should also terminate financial partnerships with anyone who also has a low credit score (so potentially closing a joint account with your partner if their credit score is notably worse than yours) and avoiding hard checks being made on your credit record such as formal loan applications (use soft checks to get quotes for different finance options, as these don't leave a mark on your credit file). Read more about how to improve your credit score here.

Meanwhile, check your credit file for errors and, if you find any, notify the respective agency, which must correct them as soon as possible. You are allowed by law to see your credit file. Most agencies allow you to do this for free during a 30-day free trial period after which they charge you for access and additional features.

Make sure to cancel these subscriptions to avoid being charged unnecessarily for the service. Alternatively, rather than approaching the agencies in turn, use Check My File which represents all of them and also offers a 30-day free trial period.

Finally, be realistic…

More than anyone else, you know your financial position and what you can afford to borrow. It’s far better to be cautious about what you can borrow (and looks better to a lender) - applying for a loan with monthly payments that are less than your monthly budget - rather than overstretching yourself.

Bear in mind, too, that the cost of having a car doesn’t just stop with purchasing it. There are running costs to pay for as well. Bear these in mind when deciding what car you can afford. Remember, too, that just because you can't get finance for a more expensive car, it's perfectly possible that you could get credit for one with a lower price. That means that you're more likely to be able to get finance for a used car that costs £10,000 than a new equivalent with a £20,000 cash price.

With modern cars being so high-tech and reliable - and some having seven-year warranties - even going for a five-year old car could prove just as stress-free as choosing a much newer one in many cases. Pick the right car, therefore, and you can increase your likelihood of being approved for finance and have an up-to-date car that should cost little to run.


Read more about:

Latest advice

  1. Car maintenance

  2. Car ownership

  3. How long does it take to charge an electric car?