Buying a Car with Bad Credit

Whether you’re looking for your very first vehicle, or something a bit different to replace your existing model, car shopping can be super exciting.
However, you may be wondering if your less-than-perfect credit rating could put the brakes on your search.
There are a number of different options you could consider when looking to buy a car with bad credit; we’ve listed some of them below.

Buying a car: what are my options?

1. Cash

If make a full cash payment, you will own the car outright.
While this inevitably means parting with a large sum of money upfront, it will work out cheaper than paying on finance in the long run, as you will not pay interest.

Advantages of buying a car with cash:

• Paying with cash means you won’t have to undergo a credit check – this could make it a good option for those with bad credit.
• Unlike a loan, you won’t have to pay monthly repayments and interest.
• The car belongs to you, giving you the freedom to do what you like with it. For example, you can sell the car whenever you choose should your circumstances change.

Things to consider when buying a car with cash:

• It could take you longer to save up the amount you need to purchase a decent, safe, and reliable car.

2. Personal loan

Taking out a personal loan to pay for a car requires a lot of consideration. Be sure to weigh up all of the advantages and disadvantages before you make a commitment, and ensure that you are able to confidently able to make your monthly repayments.

Advantages of using a personal loan to buy a car:

• The car will belong to you, as soon as you take the loan out and use it to pay for the vehicle.

Things to consider before taking out a personal loan to buy a car:

• You will need to make your monthly loan repayments on time every month.
• When applying for a personal loan, you will need to undergo a hard credit check. Having a low credit score may make it harder for you to be approved for a loan, although there are lenders who specialise in loans for people with bad credit.
• A low credit rating may also mean that if you are offered a loan it could be at a higher rate of interest, which will increase the overall cost of the car.
• If you fall behind on or fail to pay your repayments, you could be charged additional fees and your credit score could be affected.
• The time it takes for the money to reach your account depends on the lender and the policies and procedures of your bank.

3. Hire Purchase (HP)

When you buy a car with hire purchase, you secure the loan against the car. Usually you pay an initial deposit - this figure will vary between dealerships. You then repay the amount borrowed, plus interest, in monthly repayments over an agreed period of time.

Advantages of using hire purchase to fund a car:

• Providing the car is in good condition, you may be able to return the car and not have to make any further payments once you have covered half the cost. This is subject to individual contracts – checks yours before you sign to see if this option is available.
• You can choose a repayment term that suits you, although you should understand that the longer the term the more you will pay in interest.

Things to consider before opting to use hire purchase to fund a car:

• The car will not be yours until you have made the final payment.
• If you fail to your make repayments, you risk losing the vehicle.
• Interest rates tend to be better on newer models, although you will generally need a good credit score to be considered for this.

4. Personal contract purchase (PCP)

A personal contract purchase is very similar to a hire purchase, with the exception that your monthly repayments will generally be lower, while the total amount of money you will pay back may be higher.
The loan covers the difference between the price of the brand new car and its estimated value at the end of the agreement, based on the predicated mileage.
Once the agreed term expires, you have can either return the car, buy another car using the resale value, or pay the resale and keep the car.

Advantages of personal contract purchase:

• Your monthly repayments may be lower than they would be on a hire purchase agreement.
• You have multiple options at the end of the repayment term.

Things to consider before using a personal contract purchase to pay for a car:

• You may face additional charges if you go over on the set mileage, or the vehicle suffers any damage, such as scratches.
• In order to keep the car, you must pay the outstanding balance.

5. Personal contract hire (PCH)

In this instance, the car never belongs to you – you simply lease it for a set amount of time.
The overcall cost of the car includes maintenance and servicing.

Advantages of personal contract hire:

• Enjoy having access to a car at a fixed monthly rate.
• The up-front cost includes all serving and maintenance.

Things to consider before using a personal contract purchase to pay for a car:

• The monthly repayments may be higher than if you opted for a personal contract purchase, as servicing and maintenance are included.
• If you go over the set mileage limit, you may incur extra costs.
• Ending the agreement early might also result in additional charges.
• You will not own the car at any point.
• The initial deposit may vary, but could require three months’ rental costs.

6. Credit card

Like loans, using a credit card to pay for a car requires serious thought.

Advantages of using a credit card to pay for a car:

• The car will belong to you outright, as soon as you have repaid the credit card balance in full.
• There’s a chance that your purchase may be protected under the Consumer Credit Act.

Things to think about before using a credit card to pay for a car:

• You will have to pay at least the minimum monthly amount shown on your statement until your clear your credit card balance in full.
• If you have a bad credit rating, you may be offered a lower credit limit that does not cover the cost of the card.
• Some car dealers may not accept credit cards.
• Car dealers may also charge a credit card handling fee. This could be as high as 3%.

What is the best way to get a car with bad credit?

It’s important to remember that all credit payment options will require you to undergo a hard credit check as part of the application process. Having a bad credit rating may make it harder for you to be approved for financial products, including loans and credit cards. If you are approved, you may find that you are offered a higher interest rate than the advertised Representative APR.
If you want to avoid a credit check altogether, you may choose to pay for the car with cash.

How can I improve my credit rating to increase my chances of being approved for car finance?

The good news is that no matter how much of a hit your credit score has taken over the years, there are still steps that you can take to rebuild and improve it.

• Register to vote. This may seem like a bit of a strange solution, but signing up to the electoral roll provides proof of address and makes it easier for potential lenders to identify you.
• Check your credit report. Ensure your address is up to date and there are no errors in your details. Rectify any mistakes as soon as possible.
• Avoid multiple hard credit searches. When you apply for credit, the lender will run a hard search on your credit file to gain an insight into your financial history. Too many hard searches over a short period of time could damage your credit rating.
• Pay all bills and current credit commitments on time.
• Understand the risks of financial association. For example, sharing a join account with somebody who has a low credit score may have a negative impact on your own.

Time to hit the road!

Improving your credit rating will increase your chances of being approved for finance or credit in the future. When it comes to buying a car, this may open up a wider range of options.
Whichever way you choose to purchase a car, be sure that it is financially viable for you.

We hope you absolutely love your shiny new car and share many happy miles and adventures together!