Getting Car Finance With a Bad Credit Score

24th Sep 2024

Having a bad credit score can make securing finance to buy a new vehicle more challenging, but it doesn’t make it impossible. Here's a guide to your car finance and leasing options if you have a lower credit rating.

What is My Credit Score?

A credit score is a three-digit number reflecting your borrowing history. Different credit referencing agencies calculate the figure in a range of ways. Your credit report includes details like your payment history, credit searches, total debts, available credit, and public records such as electoral roll information. Keeping your credit report accurate and paying off debts on time can help improve your credit score. Most sites will let you evaluate your score, giving a general indication as to whether it is good, bad, or average.

How a Bad Credit Score Affects Car Finance

Car finance providers use your credit score to assess your likelihood of repaying loans. Higher scores can give you access to better deals and lower interest rates, but if your credit score is too low for that particular lender, they might refuse to lend to you altogether. You can look at your credit score fusing the apps or websites of the main credit referencing agencies - Experian, Equifax, or TransUnion. Although these agencies use different scoring methods, they all rely on similar data.

What is Considered a Bad Credit Rating?

Although each agency uses a different scoring system, a credit score below 500 generally puts you in the below average rating. When applying for credit to finance a new car, some lenders may decline applications from those with low credit scores.  Others might approve them but at higher interest rates. You might feel forced into taking what’s offered if you haven’t a wide choice of lenders, but make sure you can comfortably make the repayments before agreeing to any credit offer.

Tips for Getting a Cheaper Car Finance Deal

There are several steps you can take to try to make yourself more attractive as a borrower and open up a wider range of car finance deals. Some things to try are:

• Improve your credit score by paying off debts and correcting any errors on your report
• Increase the deposit you are putting into the purchase of the car to make yourself appear a better risk
• Take the same amount of money over a longer period – this may lower the monthly payments, but increase the total cost
• Look at other vehicles – cars with a lower specification might be cheaper, and therefore require less credit.

Improving a Bad Credit Score

To improve your credit score, regularly check your report for errors, consider using low-interest credit cards to build credit, avoid applying for too much new credit at once, and maintain old credit accounts. Additionally, paying bills on time, keeping credit card balances low, registering to vote, and closing joint accounts with bad history can all positively impact your score. Taking steps to improve your credit score now should make it easier to finance a car next time round.