Can I Get Car Finance If I Have Bad Credit?

Last updated on January 8th, 2026 at 01:01 pm

Home » Can I Get Car Finance If I Have Bad Credit?

Estimated reading time: 5 minutes

Yes, you can get car finance if you have bad credit, but your options may be more limited and you may pay a higher interest rate.

For context, if you have good credit, you may incur rates of 6%-9% APR and bad credit customers can pay in the region of 20% to 30% APR.

If you were to purchase a BMW for £30,000 over 5 years with no deposit, a good credit customer could pay around £500-£600 per month, whereas someone with very bad credit could pay almost double this.

To be approved, car finance companies have to meet FCA requirements when assessing applications, which means they check your income, your existing debts and the overall risk of lending to you.

The FCA outlines how these checks work and why lenders cannot approve car finance unless it is affordable. Below, we look at what to expect when applying for car finance with bad credit and how to improve your chances of being approved.

Why Does Bad Credit Affect Car Finance Approval?

Bad credit affects car finance approval because lenders use your credit history to predict how likely you are to repay the loan.

Missed payments, defaults, high credit usage or recent borrowing make lenders cautious. If your history shows financial difficulties, lenders may reduce the amount you can borrow or charge more interest to offset the risk.

Car finance agreements often run for several years, so lenders need reassurance that you can manage long-term repayments. A poor credit record makes that harder for them to judge.

What Types Of Car Finance Are Available For People With Bad Credit?

There are several types of car finance available for people with bad credit, depending on the lender and your financial situation.

Common options include:

• Hire Purchase (HP), where you own the car at the end
• Personal Contract Purchase (PCP), where you can buy the car, return it or upgrade
• Bad credit specialists offering tailored agreements
• Guarantor car finance, where someone with a stronger credit history supports your application

Each option has its own costs and requirements. Hire Purchase is often the most accessible for people with lower credit scores because the lender has more security over the car itself.

What Checks Do Car Finance Lenders Carry Out?

Car finance lenders carry out income checks, credit checks and affordability assessments. They look at your monthly earnings, your existing debts, your credit score and your bank statements. They also check your employment status to confirm that your income is stable.

These checks help lenders decide how much you can borrow and whether the repayments fit within your budget. Even lenders that specialise in bad credit must follow the same affordability rules as mainstream lenders.

Will I Pay A Higher Interest Rate With Bad Credit?

Yes, you will usually pay a higher interest rate for car finance if you have bad credit because lenders see you as a higher risk, as much as 20%-30% APR, whereas good credit customers start at 6% APR.

The more issues your credit file shows, the higher the rate is likely to be. Some lenders may also require a larger deposit to reduce the risk.

Interest rates vary widely between lenders, so comparing options is important. Even small differences in APR can make a noticeable difference to the total amount you repay.

How Much Can I Borrow in Car Finance With A Bad Credit Score?

How much you can borrow with bad credit depends on your income, your monthly expenses and the lender’s risk assessment.

Many lenders reduce the amount offered to borrowers with poor credit to keep repayments affordable. Others may set limits based on how much disposable income you have after your regular expenses.

Some lenders also restrict the age or type of car you can finance if your credit score is low. Newer cars sometimes offer lower risk for lenders, which can influence approval.

How Can I Improve My Chances Of Being Approved For Car Finance?

You can improve your chances of being approved for car finance by improving your credit score. This can start by paying off existing debts, ensuring you make all payments on time and checking your credit report for errors. A lower debt level and a clean recent history can make a big difference.

Other steps include:

• Joining the electoral roll
• Avoiding multiple credit applications within a short period
• Saving a deposit to reduce the loan amount
• Choosing a more affordable car to improve affordability checks

Even with bad credit, simple changes to your financial habits can increase your chances of being approved.

Can Car Finance Help Improve My Credit Score Over Time?

Car finance can help improve your credit score over time if you make all payments on schedule. Each successful repayment is recorded on your credit file, showing lenders that you are reliable. Over time, this positive history can help repair past issues.

However, missed or late payments will have the opposite effect. If you fail to keep up with repayments, your score may fall further.

Are There Alternatives To Car Finance If My Credit Is Very Poor?

If your credit is very poor, alternatives include:

• Buying a cheaper car outright
• Saving up and using a larger deposit to offset the lender’s risk
• Some people also look at employer loan schemes
• Getting help from family, either financially or as a guarantor

If your financial situation is difficult, it may be worth improving your credit score first before taking on long-term finance.

You can get car finance with bad credit, but your options may be more limited and you may pay more overall.

Lenders must assess affordability carefully, so your income, your debt levels and your recent credit behaviour all play a role in whether you are approved. With good preparation and realistic expectations, it is still possible to find a finance option that works for you.