Bad credit car finance is car finance for people whose credit history makes mainstream lenders cautious. It is possible with some lenders, but it’s never certain, and it usually costs more than finance for people with good credit. This guide explains what lenders treat as bad credit, how much more it can cost, and practical ways to improve your chances.
In short
Some lenders do offer car finance to people with poor credit, but approval is never certain and interest rates are usually higher. Before applying, check your credit reports for errors, use soft-search eligibility checks, and work out the total amount you’d repay, not just the monthly payment.
What counts as bad credit for car finance?
There’s no single definition. Each lender sets its own criteria, but these are common reasons a credit file is seen as higher risk:
- Missed or late payments on credit cards, loans, phone contracts or utilities
- Defaults, where an account has been closed because payments stopped
- County Court Judgments (CCJs) for unpaid debts
- Insolvency, such as an Individual Voluntary Arrangement (IVA), bankruptcy or a debt relief order
- A debt management plan, which often shows as reduced or late payments
- A thin credit file, meaning little or no credit history, which is common if you’re young or new to the UK
- High existing borrowing compared with your income
Most negative marks stay on your credit file for six years. Their effect usually fades over time, especially if your recent history is good.
Can you get car finance with bad credit?
Possibly. Some lenders specialise in finance for people with poor or limited credit histories. They focus more on whether you can afford the repayments now than on past problems. But approval isn’t certain, and any company claiming everyone will be approved should be treated with caution, because lenders must check affordability before lending.
Your chances generally depend on how recent and how serious the problems were, whether your circumstances have since improved, your income and outgoings, and the size of your deposit.
How much does bad credit car finance cost?
Lenders charge higher interest rates when they see more risk. The difference in total cost can be large.
Worked example
Borrowing £8,000 over 48 months at three illustrative APRs:
| APR | Monthly payment | Total repayable | Interest paid |
|---|---|---|---|
| 9.9% | £200.90 | £9,643 | £1,643 |
| 19.9% | £236.20 | £11,338 | £3,338 |
| 29.9% | £271.75 | £13,044 | £5,044 |
At 29.9% APR, you’d pay about £3,400 more in interest than at 9.9%. These figures are illustrations, not quotes. Rates for people with poor credit can be higher still.
Always compare the total amount payable and the APR, not only the monthly payment. A longer term can make the monthly payment look affordable while adding a lot of interest.
Bad credit car finance by circumstance
Lenders look at different things depending on your situation. These guides explain what’s specific to each:
- Car finance with an IVAWhy you usually need your supervisor's consent, and how an IVA affects your credit file.
- Car finance on Universal CreditHow lenders assess Universal Credit, and whether buying a car affects your claim.
- Car finance on PIPWhether lenders count PIP as income, and how finance compares with the Motability Scheme.
- Car finance on benefitsWhich benefits lenders may consider, and the evidence they ask for.
How to improve your chances
- Check all three credit reports. Experian, Equifax and TransUnion each hold a file on you, and lenders may use any of them. You can check them free through services such as Experian’s free account, ClearScore (Equifax) and Credit Karma (TransUnion).
- Correct any mistakes. Ask the credit reference agency to fix errors, such as debts that aren’t yours or accounts wrongly shown as unpaid.
- Register on the electoral roll at your current address. It helps lenders confirm who you are.
- Reduce your existing balances where you can. Lower borrowing improves affordability.
- Save a bigger deposit. Borrowing less reduces the lender’s risk and your total cost.
- Choose a cheaper car. A lower amount borrowed is easier to approve and to repay.
- Use soft-search eligibility checks before applying, so you only make full applications where you have a reasonable chance.
- Space out applications. Several hard searches in a short time can make lenders more cautious.
Alternatives to consider
- A credit union loan. Credit unions are not-for-profit, often lend to people with imperfect credit, and cap their interest rates by law. You can find one through Find Your Credit Union.
- A cheaper car bought outright. Buying a reliable older car with savings avoids interest altogether.
- Waiting and rebuilding your credit. Six to twelve months of on-time payments can improve the rates you’re offered.
Bad credit car finance FAQs
Does being declined for car finance hurt my credit score?
Being declined isn’t recorded on your file, but the hard search from the application is. Several hard searches in a short period can make other lenders more cautious, so use soft-search eligibility checks first.
Do soft searches affect my credit score?
No. Soft searches are visible only to you and don’t affect your score or how lenders see you.
Can I get car finance with bad credit and no deposit?
Some lenders offer no-deposit finance, but with poor credit it’s harder to get and usually more expensive. A deposit, even a small one, reduces how much you need to borrow and can improve your chances.
How long does it take to rebuild credit?
It varies. Most negative marks stay on your file for six years, but their effect lessens as they age. Making every payment on time, keeping balances low and staying on the electoral roll can make a noticeable difference within a year.