Having a poor credit history does not automatically prevent you from getting car finance in the UK. However, it narrows your options and usually raises the cost of borrowing considerably. Understanding what lenders are looking for, and what the risks are, can help you make a clearer-headed decision.
This article covers information about how car finance works for people with adverse credit. It is not personal financial advice and does not account for your individual circumstances.
The short answer
Yes, car finance is available to people with bad credit in the UK, but the terms are rarely the same as those offered to borrowers with clean files. Lenders who take on higher-risk applications typically charge higher interest rates to offset that risk. In some cases, the total cost of the car over the finance term is substantially more than the car's purchase price. Whether that trade-off is worth it depends on how much you need the car, what alternatives exist, and what you can realistically afford each month.
What counts as "bad credit" for car finance purposes?
There is no single threshold. Each lender sets its own criteria. In broad terms, any of the following on your credit file may lead to a declined application or a higher rate:
- Missed or late payments in the past six years
- A default notice or satisfied default on your record
- A County Court Judgement (CCJ)
- A previous Individual Voluntary Arrangement (IVA) or bankruptcy
- Little or no credit history at all (sometimes called a "thin file")
If you are not sure what is on your credit file, a useful first step is to check it with one of the three main UK credit reference agencies: Equifax, Experian, or TransUnion. All three offer a free statutory report. Errors on your file can affect decisions, so it is worth reviewing the detail before applying anywhere.
What are the main car finance routes?
Hire purchase (HP)
With HP, you pay a deposit (usually 10% or more), then make fixed monthly payments over an agreed term, typically one to five years. At the end of the agreement you own the car outright. There is no large final payment. The car acts as security, meaning the lender can repossess it if you do not keep up with payments.
HP can be easier to obtain with adverse credit than some other products, because the lender retains ownership of the car until the final payment. This reduces their exposure compared with an unsecured loan.
Personal contract purchase (PCP)
With PCP, your monthly payments cover the car's depreciation rather than its full value. At the end of the term you have three choices: hand the car back, pay a large "balloon" final payment to own it, or use any equity as a deposit on a new deal.
PCP monthly payments are often lower than HP, which may look appealing. Be careful, though. If you cannot make the balloon payment and there is little or no equity in the car, you may end up with nothing after years of payments. For someone with bad credit already, taking on a commitment with a large final liability carries added risk.
Personal loan from a bank or lender
A personal loan from a bank, credit union, or online lender gives you cash to buy a car outright, making you the owner from day one. There is no security attached to the car itself, which means the lender cannot repossess the vehicle directly if you miss payments (though other recovery action is possible).
People with adverse credit will typically face higher rates on unsecured personal loans, and approval is not certain. Credit unions sometimes offer more flexible terms than mainstream banks for people in their membership with poor credit histories. It may be worth checking whether there is a credit union operating in your area or sector.
Specialist bad-credit car finance dealers and brokers
Some dealers and brokers specifically target people with adverse credit. They often work with a panel of lenders willing to approve higher-risk cases. The trade-off is nearly always a higher APR.
Check that any broker or lender you deal with is authorised and regulated by the Financial Conduct Authority. You can search the FCA register at fca.org.uk to confirm a firm's status before handing over any personal details.
What to check before applying
Applying for car finance triggers a hard credit search in most cases. Multiple hard searches in a short period can lower your credit score further and make subsequent applications harder. A few things worth checking before you apply anywhere:
- Soft-search eligibility tools. Many lenders and brokers now offer a soft-search check that shows your likelihood of approval without leaving a mark on your file. Prioritise these before committing to a full application.
- Your credit file. Check all three agencies if you can. Correct any errors before applying.
- Affordability. Work out what you can genuinely afford each month, including insurance, fuel, tax, and maintenance. Lenders will assess affordability as part of their checks. Overstretching repayments can lead to missed payments, which worsens your credit position further.
- The total amount repayable. Compare not just the monthly payment but the total cost over the full term. A longer term or a high APR can mean paying far more than the car is worth.
- Deposit size. A larger deposit reduces the amount you need to borrow. That lowers the lender's risk and may improve your chances of acceptance.
Risks and checks for bad-credit car finance
The risks with car finance are higher when your credit is already under pressure. Here is what to be careful about.
Higher APR adds up fast. A borrower with a clean credit history might be offered a representative APR of around 9% to 14% on HP or PCP. Someone with adverse credit may face rates of 20%, 30%, or significantly higher. On a £7,000 car over three years, the difference in total interest between 10% and 30% APR is several thousand pounds.
Repossession risk. With HP or PCP, the car is security for the loan. If you miss payments, the lender may be entitled to repossess the vehicle. Losing transport can affect your ability to work, which creates further financial pressure.
Negative equity. Cars depreciate. If you fall behind on payments and the lender repossesses the car early in the term, the sale price may not cover what you still owe. You could remain liable for the shortfall.
Pressure selling and add-ons. Some dealers push insurance products, extended warranties, or other add-ons as part of the finance package. These add to the total cost. It is worth pausing to consider whether each add-on is necessary before agreeing.
'No credit check' advertisements. Be careful with any firm advertising car finance with no credit check at all. FCA-regulated lenders are required to carry out creditworthiness and affordability checks before agreeing to a credit agreement. A firm claiming to skip these checks entirely may be unregulated, or the claim may be misleading. Either way, the rates tend to be very high and the consumer protections may be weak or absent. Always verify a firm's status on the FCA register.
When not borrowing may be the better option
There are situations where taking on car finance, even if technically available, may not be the right move.
If you are already missing payments on existing debts, adding a secured car finance agreement increases the pressure on your finances further. A missed HP or PCP payment can lead to repossession and a further mark on your credit file.
If your adverse credit is recent (within the last one to two years), waiting and repairing your credit history before applying may result in a meaningfully lower rate when you do borrow. The money saved in interest could be substantial.
If the car is for convenience rather than necessity, the cost of high-rate finance may not represent good value. Saving towards a cheaper car bought outright removes the debt obligation entirely.
Free debt advice is available if you are struggling with existing credit commitments and are worried about taking on more. Speaking to an adviser before applying for car finance can help you see the full picture.
StepChange Debt Charity: 0800 138 1111 (free, Monday to Friday) National Debtline: 0808 808 4000 (free, Monday to Friday, plus Saturday mornings) MoneyHelper: 0800 138 7777 (free, Monday to Friday)
Frequently asked questions
Can I get car finance with a CCJ on my credit file?
Some specialist lenders do consider applications from people with CCJs, but the interest rate offered is likely to be significantly higher than standard. Whether a CCJ is satisfied (paid off) or unsatisfied affects how lenders view the risk. Checking your eligibility with a soft search before applying can reduce the impact on your credit file.
Does applying for car finance affect my credit score?
A full credit application usually triggers a hard search, which shows on your credit file for up to two years and can lower your score slightly. If you are comparing deals, look for lenders or brokers that offer a soft-search eligibility check first, so you can see your chances without leaving a mark.
What is the difference between PCP and HP when I have bad credit?
With PCP you pay towards a car's depreciation and make a large optional payment at the end to own it outright. With HP you pay off the full value in instalments and own the car when finished. HP is generally simpler, and some lenders consider it slightly lower risk because there is no large balloon payment.
Are 'no credit check' car finance deals legitimate?
Be careful. Lenders regulated by the FCA are required to carry out affordability and creditworthiness checks. A firm advertising no credit check at all is either unregulated or may be misrepresenting its product. Either way, the interest rates on such deals tend to be very high.
What if I cannot afford the repayments after taking out car finance?
Contact your lender as early as possible. Under FCA rules, lenders must treat customers in financial difficulty fairly. Free advice is also available from StepChange (0800 138 1111), National Debtline (0808 808 4000), and MoneyHelper (0800 138 7777).
Will a larger deposit help me get accepted for car finance with bad credit?
A larger deposit reduces the amount you need to borrow, which lowers the lender's risk. That can improve the chances of acceptance and may result in a lower interest rate. It does not guarantee approval, but it is one of the factors lenders weigh when assessing your application.
Sources and further reading
- FCA (Financial Conduct Authority): Consumer credit regulation, creditworthiness assessment rules, and the FCA register for checking firm authorisation, fca.org.uk
- MoneyHelper: Guidance on car finance, personal loans, and credit files, moneyhelper.org.uk
For a broader look at borrowing with a poor credit history, see our guide to bad credit loans and our guide to car finance.
- Can I get car finance with a CCJ on my credit file?
Some specialist lenders do consider applications from people with CCJs, but the interest rate offered is likely to be significantly higher than standard. Whether a CCJ is satisfied (paid off) or unsatisfied affects how lenders view the risk. Checking your eligibility with a soft search before applying can reduce the impact on your credit file.
- Does applying for car finance affect my credit score?
A full credit application usually triggers a hard search, which shows on your credit file for up to two years and can lower your score slightly. If you are comparing deals, look for lenders or brokers that offer a soft-search eligibility check first, so you can see your chances without leaving a mark.
- What is the difference between PCP and HP when I have bad credit?
With PCP you pay towards a car's depreciation and make a large optional payment at the end to own it outright. With HP you pay off the full value in instalments and own the car when finished. HP is generally simpler, and some lenders consider it slightly lower risk because there is no large balloon payment.
- Are 'no credit check' car finance deals legitimate?
Be careful. Lenders regulated by the FCA are required to carry out affordability and creditworthiness checks. A firm advertising no credit check at all is either unregulated or may be misrepresenting its product. Either way, the interest rates on such deals tend to be very high.
- What if I cannot afford the repayments after taking out car finance?
Contact your lender as early as possible. Under FCA rules, lenders must treat customers in financial difficulty fairly. Free advice is also available from StepChange (0800 138 1111), National Debtline (0808 808 4000), and MoneyHelper (0800 138 7777).
- Will a larger deposit help me get accepted for car finance with bad credit?
A larger deposit reduces the amount you need to borrow, which lowers the lender's risk. That can improve the chances of acceptance and may result in a lower interest rate. It does not guarantee approval, but it is one of the factors lenders weigh when assessing your application.