How It Works
How to qualify for a car finance with bad credit
Bad Credit

How to qualify for a car finance with bad credit

The unfortunate fact is that bad credit can really affect your chances of qualifying for a car finance. Lenders are far warier of those with a poor credit score, and therefore interest rates can be higher, or they could even refuse the application. But, don’t ...
Fahad Hussain
January 2021
How to qualify for a car finance with bad credit
How to qualify for a car loan with bad credit

The unfortunate fact is that bad credit can really affect your chances of qualifying for a car finance.

Lenders are far warier of those with a poor credit score, and therefore interest rates can be higher, or they could even refuse the application.

But, don’t worry, because if you do have bad credit, it’s not only still possible to qualify for a car finance, there are ways that can improve your chances.

What is bad credit?

Bad credit is when negative aspects of your financial history indicate you would be a risk to lend money to. A person with bad credit may find it harder to get approved for finance, credit cards or even a mortgage.

Couple looking at laptop

There are several factors that can lead to having bad credit, such as:

  • Frequent late or missed payments
  • High credit utilisation
  • Having a short credit history length
  • Multiple applications for credit in a short space of time
  • Not being registered on the electoral roll
  • Not having a variety of credit
  • County Court Judgements (CCJs)
  • Bankruptcy

Bad credit is normally indicated by your credit score. Now, not all of these factors on their own will lead to a bad credit score (for instance, if you missed one payment a couple of years ago, you won’t necessarily have a bad credit score). Rather your credit score is calculated using all these factors and patterns that can be seen in your financial history.

How does bad credit affect a car finance application?

Lenders take your credit score seriously, and while it’s not the only thing they look at, it’s very important.

Lenders usually consider a person with a bad credit score as a risky borrower. This can be because they have large amounts of unpaid debt or a history of missing payments or defaults.

Bad credit document

So, if you have a bad credit rating, you may find it a little more challenging to find a good deal on a car finance, perhaps only being offered higher interest or deposit deals.

Don’t despair, though, because if your credit score isn’t the best, you still have plenty of options available to you.

We specialise in helping customers with bad credit get better car finance deals. Using our soft search credit tool, we can also find out whether you’re eligible for car finance without hurting your credit score.

How to improve your chances of getting a car finance with bad credit

So, we’ve established that your credit score is a big factor as to whether you’ll be accepted for car finance or not. Now the good news. Your credit score isn’t fixed – the numbers can be changed depending on how you manage your finances.

There are also some other things you can do outside of improving your score to help your chances of getting a car finance.

1. Improving your credit score

If you’re looking to better your credit score, here are some of the steps you can take. Some will have an almost immediate effect on your score, while others will take a little longer to show up.

Improving your credit score

However, all are worth doing if you want to the best chance of getting a good car finance deal.

2. Check your credit report regularly

Researching on laptop

This is the first step to understanding what the lenders will see and what you can improve upon to raise your score.

If there are any errors on your report – even a misspelt address – get in touch with the credit reference agency and ask that they are amended.

Read: How do I check my credit score before applying for a car finance?

3. Register on the electoral roll

Lenders like stability. By registering to vote, your details and address are updated on your credit report, raising your score and making it easier for companies to confirm your identity.

4. Demonstrate financial stability

This is an important one, but it’ll take longer before it’s reflected in your score. Demonstrating financial stability to lenders means regularly paying your bills, finance repayments, credit cards etc., on time.

Make sure you don’t go over your credit limit and always try to pay more than the minimum every month.

5. Settle any old accounts

Close down old accounts you no longer use, particularly if they have available credit. If possible, settle any defaults or outstanding CCJs or ensure you have payment plans in place

6. Cut damaging financial ties

Close any joint accounts you may have still open with previous partners or housemates as if they have bad credit, it will affect your score.

If this isn’t possible, speak to the credit reference agency about putting a notice of disassociation on your report.

3 ways to improve your chances of getting a car finance

1. Save for a deposit

The bigger your deposit, the less you’ll need to borrow and the lower your monthly repayments will be.

As your affordability will then look better, it’ll help your chances of your car finance application being accepted.

If saving for a large deposit isn’t possible because of time, it may be possible to still get a no deposit deal even with bad credit.

At Hippo, we have experience helping people with bad credit get the car they want regardless of their current financial circumstances – including if you’re struggling with a deposit.

2. Consider a guarantor finance

If you’re struggling to get accepted for car finance or the interest rates are too high to make it affordable, asking someone trusted to be a guarantor on your finance could be an option. With a guarantor on the finance, there’s much less risk for the lender, and you’re more likely to get a competitive rate.

3. Look at all your options

There are always alternatives if the car finance route isn’t right for you. Whether that’s using a credit card to pay in part for the car or even seeing if a family member could help with a personal finance, looking at all your options will help you make the right decision.

Read: What is a guarantor finance and can I use one to finance a car?

What to watch out for

Multiple applications

If your application for a car finance has been rejected, it’s normal to want to try somewhere else to see if you’ll be accepted there. However, every time you apply, the lender will search your credit report, and this leaves a note for other lenders to see. The more applications for credit you make, the worse it looks to a lender, and your credit score will more than likely suffer.

Feeling pressured

When you want to be able to drive off in your new car, but your credit score is holding you back, you may start to feel a bit desperate. However, don’t get forced into a contract that you feel might be unaffordable or has an interest rate above and beyond what you feel is reasonable.

We can help

At Hippo Motor Finance, we have years of experience when it comes to finding car finance solutions for bad credit.

Our soft search eligibility check allows you to find out your best options without harming your credit score. You’ll have access to a large range of specialist lenders who understand your position, so bad credit is less of an issue.

Free eligibility check

If you’re ready, it’s really simple and quick to find out whether you’ll be eligible for car finance with our online check.

Fill in a few details, submit the form and you’ll find out in minutes which car finance deals you could be accepted for.

Check your eligibility now.

Check your Eligibility Rates from 12.9% APR. Representative APR 18.9%. We are a credit broker, not a lender. *a hard search will be performed if you decide to proceed