Securing car finance with bad credit can be challenging, but it’s not impossible. There are several financing options available for individuals with less than stellar credit in the UK.
When navigating the murky waters of bad credit car finance, it’s essential to be informed and choose the option that aligns best with your financial situation. Here are some of the most suitable car finance options for those with bad credit:
1. Hire purchase (HP)
With HP finance, you pay an initial deposit, followed by fixed monthly payments. The car remains the property of the finance company until the final payment is made, after which you own the car outright. This method offers the advantage of fixed interest rates, so you’ll always know what you’re expected to pay each month. Lenders might be more inclined to offer HP to those with bad credit since the vehicle serves as collateral.
2. Personal contract purchase (PCP)
PCP finance is similar to HP, but often comes with lower monthly payments because you’re effectively only paying off the car’s depreciation. At the end of the contract, you can either pay a ‘balloon payment’ to own the car, return the car, or trade it in for a new model. Due to the flexibility of this option, it might be slightly harder to secure with bad credit, but not impossible.
3. Personal loans
While this might be harder to secure with a bad credit rating, some lenders might still offer a personal loan. It allows you to buy the car outright, and then repay the loan amount in instalments. However, the interest rates might be higher for those with bad credit.
💡 Learn more: Bad credit car finance costs vs personal loans.
4. Guarantor loans
If you have a family member or friend with good credit willing to act as a guarantor, a guarantor car loan might be viable. Essentially, the guarantor agrees to cover the repayments if you default. This reduces the risk for lenders, making them more likely to approve the finance.
5. Subprime lenders
Some lenders specialise in offering finance to those with bad credit. While the interest rates might be higher, they are more understanding and accommodating of your credit history.
6. Credit builder finance
Some finance options specifically aim to help individuals rebuild their credit. These contracts often have higher interest rates, but they report your regular repayments to credit reference agencies, helping boost your credit score over time.
When seeking car finance with bad credit, it’s essential to shop around, compare interest rates, and read the terms and conditions thoroughly. It’s also crucial to ensure you can comfortably afford the monthly repayments to prevent further damage to your credit. Remember, making regular repayments can gradually improve your credit score, opening doors to better finance options in the future.