Buying a new or used car can be costly, so using finance to spread the cost of your purchase is a smart move. However, the most attractive car financing arrangements are reserved for people with impeccable credit histories. However, if you don’t have the best credit score in the world, there are certain things you can do to improve your chances of being approved. We explore some of your options below.
Car finance options for bad credit
There are three ways in which people in the UK typically finance car payments:
- Personal loan: A personal loan from a lender like Koyo Loans allows you to apply for a lump sum of money, which you then need to repay in monthly instalments. You own the car outright from the beginning, and you can sell the car if you need to in the future.
- Hire purchase: A hire purchase requires you to make a deposit on the car, but you don’t actually own it until you have met all of the monthly repayments.
- Personal contract purchase: A PCP also requires a deposit and comes with monthly repayments. Then, at the end of the specified period, you can either buy the car with a balloon payment or return it and look for another financing option. Throughout your PCP, you will be restricted to a certain amount of mileage.
You can apply for these car financing options from a range of sources, be it car dealerships or specialist lenders. If you have a poor credit history, you will be offered fewer deals and higher rates of interest, but you might still be approved.
Do you need a minimum credit score to get a car loan?
Contrary to popular belief, there isn’t actually a universal credit score. Therefore, it’s impossible to say what score you need to access credit. Each of the three credit bureaus in the UK manages credit scores differently, so the required score depends on which bureau your lender uses. For instance, Experian scores out of 999, while TransUnion has a maximum score of 720. Rather than focusing on the number, you will probably need a good or very good credit score to access car financing, or at the very least a fair credit score to access reasonable credit.
How should you finance a car with bad credit?
Everyone is different, so it’s hard to say how you should finance a car. But generally speaking, applying for an Open Banking loan is a good way to access finance if you have a poor credit score. This is because lenders that use Open Banking software consider your current financial circumstances rather than merely looking at your credit score and nothing else. Open Banking lenders are more concerned with your current incomings and outgoings, as opposed to backwards-looking indicators.
Alternative financing options
If you don’t have any luck with any of the above three financing options, you could try one or more of the following ways of accessing a car:
- Car rental: If you don’t need access to a car every day, you might consider renting a car as and when you need one. Companies like Zipcar and Ubeeqo are ideal for finding short term rentals and even allow you to rent by the hour. If you can find an affordable car rental arrangement, you don’t need to find financing at all.
- Look at cheaper cars: If you’re struggling to finance the car of your dreams, look for a cheaper alternative. You could downsize on your desired model or consider an outgoing model. Also, buying a car at the end of the month is usually cheaper than looking for a new car at the start of the month.
- Car sharing: In a similar way to renting a car, if you can carpool or share a car with a friend or family member, you can split the associated costs and make it much cheaper to use a car as and when you need it.
The best way to access car financing when you have bad credit is to apply to an Open Banking loan provider like Koyo Loans. This is because they use your real-time financial data to approve or reject your loan application, as opposed to your credit score. You can also consider the above alternatives if you’re struggling to access the money you need to finance the car of your dreams.