Subprime car finance

Having a low credit rating may not mean missing out: how subprime car finance can help

BuyaCar team
Apr 24, 2019

Credit scores are complex in nature, but simple to understand. The higher your score, the easier it is to get finance. But there are plenty of reasons for having a low credit score.

Young people naturally have a lower credit score, while others have just never borrowed a lot of money in the past. Missing debt repayments, or having County Court Judgements (CCJs) registered against you also has can contribute towards a low score.

Any of these factors can restrict your access to car finance, making it more difficult to spread the cost of your car with monthly payments.

Having a low score usually results in you being charged a higher interest rate, increasing the cost of finance; and that you lose the ability to take out finance without a deposit; some lenders simply won't offer finance at all.

But there are lenders who specialise in subprime finance, often offering competitive rates to borrowers with a less than perfect credit score, as long as they are able to afford the repayments. Young drivers may also have the option of a guarantor loan, which can reduce your monthly costs if you have a willing friend or relative who would have to repay the loan if you failed to do so.

You may be able to take some simple steps to improve your credit score and improve your car finance prospects, if circumstances allow. We've listed some techniques below.

BuyaCar works with a panel of lenders, including subprime specialists. You can get in touch to discuss your options by sending a message, calling 0800 050 2333 or applying for a quote now.

Subprime car finance for buyers with a poor credit rating

Even if you have a low credit score, you'll still have some flexibility in the type of finance that you're offered. As always, lenders will be looking to ensure that you can afford the repayments. These are the most common options:

Subprime PCP (Personal Contract Purchase) finance

PCP agreements are the most popular type of car finance and generally available to subprime buyers. Monthly payments are relatively low because they don't cover the full cost of the car. At the end of the agreement, you have the option of handing the car back or paying the balance to own the car. Depending on its value, you may also be able to trade the car in for another one. Read our guide to PCP for more information.

If you have a low credit score, then you're likely to be offered an interest rate that's higher than the one used representative finance examples, which will increase the cost of your monthly payments. It's worth bearing this in mind when looking for a car.

No-deposit PCP deals are not usually available for subprime buyers: you are likely to need to pay at least 10% of your car’s value at the beginning of the deal.


Subprime HP finance (Hire Purchase)

Hire Purchase is a simple type of finance that allows you to spread the cost of buying a car with a series of monthly payments. Once all of the payments are made, you own the car. You can read our full guide to Hire Purchase for more information. Conditional sale finance is virtually identical and works the same way.

Just as with PCP, subprime buyers will pay higher interest rates than those with better credit ratings, which will increase the monthly cost of their car. A deposit of at least 10% is likely to be required too.


Subprime car leasing (also known as Subprime PCH - Personal Contract Hire)

Car leasing is a type of long-term car rental, but rarely offered to subprime buyers. Read our guide to PCH for more information.


Affordable subprime finance

Making car finance affordable with a low credit score may mean finding a cheap car, which requires less of a deposit and low monthly payments.

As with any type of finance, the overall cost will be lower if you put down a larger deposit because you’ll be borrowing less money, and paying less interest on it. It's particularly noticeable with subprime finance because the higher interest rates can account for a substantial proportion of your repayments.

Repayments on PCP finance are usually cheaper than on HP finance, but you won’t own your car at the end of it, unless you pay an additional lump sum - unlike HP.

One way for young drivers to reduce the cost of your finance may be to recruit a guarantor.


Taking out guarantor finance

Young drivers often have access to low-rate finance by using a guarantor.

These are usually relatives who own a home and have a good credit rating. They must agree to make your payments if you fail to do so, which gives the lender additional security, and allows them to lower the interest rates offered, based on the guarantor’s credit score.

Keep in mind that the guarantor’s credit rating can be affected if payments are missed. For full details, see our guide to guarantor finance.


Boosting your credit rating

The first step to boosting your credit rating is to ensure that you have taken all of the steps on the checklist below:

  • Register on the electoral roll at your current address.
  • Cancel any credit cards or store cards that you don't use.
  • Build a history of repaying debt by using a credit card sparingly and repaying the bill in full each month.
  • Check yout credit file to ensure that the information is accurate.

Other factors that improve your credit rating include having regular employment, spending several years at the same address and paying off your debts, which all indicate stability and less risk for your lender.


Why is subprime car finance more expensive?

Lenders believe that the lower your credit rating, the more likely you are to miss payments on your car, which could leave them out of pocket. As a result, they increase interest rates to account for this.

They also tend to require a sizeable deposit from the start. This helps to ensure that the amount that you owe to the lender is close to the value of the car throughout the agreement. If a buyer does miss payments, then the car can be seized and sold to pay off the debt.


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