Can you get car finance with bad credit?

If your credit score isn’t what it could be, don’t despair – there are still ways to get behind the wheel of a new car.

Leasing is one of the simplest and most affordable ways of driving a brand new car, but it’s usually dependent on you having a strong credit rating. But what if your credit score isn’t strong enough?

There’s no way around the fact that a poor credit score means some options won’t be available to you. Leasing will be tricky, but you could consider a personal contract purchase (PCP). This offers relatively low monthly payments and you can choose to return the car at the end of the contract.

Unlike a hire purchase (HP) deal, where you pay off the value of the car each month, a PCP deal sees you pay only the equivalent of the expected depreciation, which means it’s normally considerably more affordable each month. This means it offers those with less-than-perfect credit scores the opportunity to get into a new car without having to pay full HP prices.

But can I get a PCP deal with bad credit?

Yes, you can get a PCP car finance agreement if you have bad credit, but you might not get the absolute best deals. A bad credit rating means you’ll be seen as more of a risk by lenders, so they’ll charge you more interest, and some deals might not be open to you at all.

PCP deals are very flexible though – interest rates and deposits can be adjusted to reflect the risk taken by a finance company. While you may be asked to pay a larger deposit than if your credit rating was better, this does at least lower your monthly payments.

As with any finance or leasing deal, the lender will want evidence that you can afford the repayments alongside other monthly outgoings, such as your rent or mortgage.

A PCP deal will run for a set amount of time – normally between two and four years – after which you can pay a lump sum called an optional final payment to own the car, or hand it back. If the car is worth more than the optional final payment, you could trade it in and use the surplus value to get money off your next car. You can also refinance the optional final payment if needed.

How can I get the best PCP deal with bad credit?

Monthly PCP finance payments are based on the expected depreciation of a brand-new car. While choosing a cheaper car will likely keep costs down, choosing a car that’s expected to hold its value well is arguably more important. A cheap car that loses a lot of value is likely to cost more than a more expensive car that holds onto its worth.

All that said, if your credit is bad it will likely cost you more in interest than advertised deals, which use a typical interest rate. This rate will probably end up being higher because low credit scores represent a risk in the eyes of lenders.

Could I lease a used car if I have bad credit?

While leasing deals are generally for new cars only, PCP finance can be found on both new cars and used cars, although they’re generally four years old or newer. This gives you more options in terms of car choice, and also widens the price range.

You can get finance on older cars too, but these will generally be on hire purchase (HP) deals. As cars get older, it becomes harder to estimate their worth at the end of the contract, which makes it difficult to work out a PCP deal. While you’ll pay less overall interest on an HP deal, and you’ll own the car at the end, it’ll be considerably more expensive than an equivalent PCP deal.

Could a finance deal improve my credit score?

Yes. If you successfully apply for a PCP finance deal and meet all your monthly payments, your credit score should improve. This will make it easier in the future for you to lease a car or take out finance at a lower interest rate.

Credit scores exist to represent risk to lenders offering you finance, so if you have a proven record of meeting your payment obligations, they’ll be more confident that you’ll repay them on time. This usually results in lower interest.