What’s the best car finance deal for a bad credit score?

Published: June 29, 2022

Having a lower credit score can make it harder to get accepted for car finance but not all hope is lost! There can be specialist forms of car financing which enable people with bad credit to get a car at affordable rates. It’s a common misconception that having bad credit means you won’t be accepted or may receive sky-high interest rates to help secure the loan. However, this is no longer true. The guide below explores the different types of finance which can be suited to those with less than perfect credit scores.

How does bad credit affect car finance?

When you apply for a car on finance, you will usually be asked to undergo a credit check. Soft search credit checks don’t harm your credit score but can give the lender access to your credit score and some of your credit report. They do this to see what type of borrower you are and if you can handle credit sensibly. If you’ve missed payments in the past, have been declared bankrupt, are in debt or have a CCJ, you may find yourself with a poor credit score. Some car finance lenders may decline you if you have a bad credit score or may offer higher interest rates which affect how much you pay back overall. However, newer, more specialist lenders have come into the marketplace and aim to offer affordable car finance to as many people as possible. 

Hire purchase car finance

Hire purchase is a form of car finance agreement which can be suitable for those with low credit scores. Within hire purchase, you can pay for your chosen car in monthly instalments with added interest. The lender owns the car throughout the agreement which can make it suitable for those with lower credit scores. This is because the lenders can use the car as collateral if you fail to make your repayments. 

Black box car finance

If you’re looking for a car finance deal that can help you keep on top of your payments, black box finance can do exactly that. Often confused with black box car insurance, black box finance is when a lender fits a small box into your car and receives information through GPRS. These types of black boxes are for financial purposes only and don’t track your driving style. Instead, they can be used to send reminders about when your car finance payments are due to help you make all payments on time and in full. This can be particularly helpful if you have bad credit due to missed payments in the past. Some forms of black box car finance can even disable your car so if you don’t make your payments, you won’t be able to use the car. 

Joint application

If you’re struggling to get approved for car finance on your own, you could consider a joint application. A car finance joint application is when two people, usually a couple or family members, apply for finance on the same car. This can be particularly useful when one person has bad credit, but good income and their partner can support the application with a stronger credit score. A credit check will usually be performed on both credit files and both parties will be responsible for meeting the repayment deadline. If you both fail to meet the requirements of the agreement, your credit files can be affected, and serious financial implications can follow. It’s important that you only take out a car finance deal that you know you can afford to pay back each month till the end of the term. 

Guarantor loans

A guarantor car loan is when someone is like a joint application but instead, your co-signer is just there to support your application. A guarantor is someone who agrees to pay your car finance if you fail to do so. From a lender's point of view, they are essentially having two opportunities for the loan to be paid back so it can be suited to people with bad credit. If both you and your guarantor fail to make the repayments, both of your credit files can be affected and could lead to defaults on your credit files.