Can you get car finance with bad credit?

Looking for low monthly payments despite a poor credit score? PCP finance can provide an alternative to car leasing.

By BuyaCar team February 1, 2024

If you're looking for a brand new car, then leasing is one of the easiest ways to get behind the wheel of a desirable model for a reasonable monthly cost. But you normally need a strong credit rating to be accepted. So can you get finance if you have bad credit?

If you have a poor credit rating, or just one that's lower than average, then affordable leasing may not be available. However, this doesn't rule out PCP finance, which provides you with relatively low monthly payments and the option to return the keys at the end of the contract.

Because you're not buying the car, the total amount that you pay over the course of the lease deal is typically much lower than the car's cash price. With a PCP you pay the equivalent of how much value the car is losing as you use it, with a lease what you pay is effectively a monthly rental rate to drive the car.

As a result, if your credit score is less than perfect but you like the idea of accessing a new car for an affordable monthly payment, PCP finance could be a more viable option than leasing.

Can I get PCP finance with bad credit?

Yes, you can, but it's unlikely you'll get the best deals around. A bad credit rating means lenders see as more of a risk, so they will charge you more interest. Meanwhile, certain deals may not be available to you.

PCP is a full finance agreement where interest is charged, which means that lenders can adjust the rate to reflect their risks. 

As a result, interest rates will be higher if you have a low credit score and you’ll normally be required to pay a deposit. This isn’t a bad thing if you have the money: the bigger the deposit, the lower your monthly payments will be and the less interest you'll pay overall.

As with any type of finance or leasing, lenders will check to ensure that payments are affordable, alongside all of your other essential costs, such as rent or mortgage payments.

The reason PCP payments are lower than an equivalent loan or Hire Purchase deal is that they only cover part of the vehicle's cost -  the amount of value the car is expected to lose during the contract.

PCP is more flexible than leasing because you have other options at the end of the agreement besides just handing the car back. You can buy the car for a pre-agreed amount (known as the optional final payment) or if you don't have the cash to hand you can refinance this, either with another PCP finance contract or Hire Purchase

Meanwhile, with PCP, if the car is worth more than the optional final payment when you hand the keys back then you’ll also be able to 'trade it in' and put this difference - known as equity - towards a deposit on your next car. This, in turn, reduces monthly payments on that car.

How to get affordable PCP finance with poor credit

Your PCP finance payments are based on the amount of value that your car is expected to lose during the contract. So if you choose a car that holds its value well, such as the MINI hatchback, then this will reduce your payments compared with a car with the same cash price that is less desirable once it's used - and consequently loses value faster.

The monthly prices shown on BuyaCar are representative examples, based on a typical interest rate. If you’re borrowing with poor credit, then the cost is likely to be higher. This is because those with low credit scores pose a higher risk to lenders and lenders account for this risk by charging more interest.

Can I lease a used car with bad credit?

Most leasing arrangements are restricted to new cars, but PCP finance is available for both new and used cars that are typically less than four years old. This provides far more options with a greater range of cars to choose from, across a wider price range.

Older models are available to finance too, but for cars over five years old you’ll normally need to spread the cost with Hire Purchase (HP) finance, which will result in you owning the vehicle once you've completed the monthly payments.

Although you're likely to pay less interest overall on a Hire Purchase deal - and you'll own the vehicle at the end of the contract - the monthly cost may be out of reach compared with an equivalent PCP deal, unless you opt for a much older model.

Don't see this as a bad thing. You can always trade in your car for a new one at the end of the agreement if you want, putting the car's value towards a deposit on your next car, reducing your monthly payments next time around.

What is leasing?

Improving a bad credit score with finance

Successfully applying for PCP finance and making your monthly payments on time should improve your credit score, which may help you to lease a car or take out finance at a lower interest rate in future.

Credit scores are meant to reflect the risk that lenders take when they offer you finance, so a strong record of making payments on time will normally result in a higher score, as future lenders can be more confident that you will pay them back on time. If you have a higher score, lenders should reflect this by charging you less interest.

Other factors that affect your credit score include County Court Judgements (CCJs), bankruptcies and the length of time that you have lived at your current address.

The more stable your situation is (for example, living at one address for a long time, having a permanent job and appearing on the electoral roll), the more creditworthy you are likely to be - and the more likely you are to be eligible for lease deals or lower interest rate finance offers.

How to check your credit score