Can you get car finance with bad credit?

If your credit score isn’t where you’d like it to be, don’t worry - there are still ways to finance a car. While some options may be more limited, there are still finance solutions that could work for you.

Leasing a brand-new car typically requires a strong credit history, which may make it more challenging for those with lower credit scores. However, other finance options, such as Personal Contract Purchase (PCP) and Hire Purchase (HP), may be available depending on your circumstances.

PCP finance could be a flexible option, offering lower monthly payments compared to HP. This is because you’re primarily covering the expected depreciation of the car rather than its full value. At the end of the agreement, you can choose to return the car, trade it in for a new one (subject to approval), or make a final ‘balloon’ payment to keep it.

HP finance works differently - your payments go towards owning the car outright at the end of the term. While monthly payments may be higher than a comparable PCP deal, this isn’t always the case and will depend on factors like deposit size, interest rates, and contract length. HP may be a good option for those who want full ownership of the car without a final lump sum.

Can car finance improve your credit score?

If managed responsibly, financing a car can help build your credit score, as regular, on-time payments demonstrate financial reliability. However, missed or late payments can negatively impact your credit score and may make it harder to obtain credit in the future. It’s essential to choose a finance agreement that aligns with your budget to avoid financial strain.

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.