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How Do Credit Scores Affect Car Finance?

Posted on 05/01/2018

Car finance is a straightforward and simple process. One of the most important steps and an unavoidable part of the process is getting credit searched. Lenders want to know how likely you are to repay your car loan, so your chances of being approved will depend on what your credit report looks like. Read on to find out how your credit score affects car finance.

What is a credit score?

A credit score is essentially a tool that lenders use to help decide whether you qualify for the credit card, personal loan, mortgage or car finance that you’re applying for. Using the personal information you provide with your application, lenders will decide how much of a risk you are to lend to.

Your credit score is based on your credit report. This is a report that includes information on your debts, credit cards including their limits and available spend, utility accounts and their payment history, credit search that have been recorded and any public records such as your registration on the electoral roll and CCJ’s.

What score do I need to be approved for car finance?

There isn’t a universal credit score that will guarantee an approval for car finance – in fact no one can guarantee car finance! However, those with a higher score are generally seen as less of a risk than those who have a low credit score. Each lender has their own criteria and your score can actually vary from each credit scoring agency so be sure to check as many as you can. Our wide panel of lenders means we have up to 60 different lending products, so we’re certain to find you your perfect car finance deal.

Checking your score before you apply is a good idea as there are some small steps that you can take that will help to increase your chances of being approved for car finance. Registering yourself on the electoral roll is a really quick and easy tip, as it helps lenders trade your address history and reduce the possibility of making a fraudulent application.

Couple buying a used car with bad credit

What are the different types of car finance available?

Hire Purchase Explained

Hire Purchase is good for customers who want to own their car in the long run. Essentially you hire the car from the finance company until the final payment has been made. Then the title of ownership transfers to you, after you’ve paid a small fee called an ‘Option to purchase fee’.

Spread the cost of your new car into monthly or weekly payments with a Hire Purchase agreement. You can also benefit from a low deposit as generally a deposit of no more than 10% is required.

Personal Contract Purchase Explained

Due to the structure of this finance agreement, Personal Contract Purchase is perfect for anyone who likes to change their car regularly. A PCP agreement usually lasts 2-3 years and at the end of the agreement you have several options. Firstly, you can hand the car back and simply walk away. Because the finance company have guaranteed the minimum value of the car you have nothing more to pay. The next option is to purchase the car by paying off the Guaranteed Minimum Future Value (also known as a balloon payment). The final option is if your car is worth more than the GMFV then you can sue the difference towards a deposit on a new car and enter into a new PCP.

Conditional Sale Explained

A Conditional Sale car finance agreement is very similar to a Hire Purchase however with a Conditional Sale you commit to purchasing the car at the start of the agreement. This means when the term has come to an end and you’ve paid your final repayment, ownership of the vehicle transfer to your automatically and you have no extra fees to pay.

Can I get car finance if I have a bad credit score? 

Getting car finance with a bad credit score is possible. There are several options available through our panel of lenders if you have a less than perfect credit score. We understand that it can be tough to get the money together for a deposit, so we can offer no deposit car finance options, even with bad credit.

After you’ve been approved for car finance, you can start to rebuild your credit score by making all of your repayments on time. If you have a PCP finance agreement, you can reapply for a new car at the end of the term and you could be offered a better interest rate. If you’ve chosen Hire Purchase or Conditional Sale, you can find out how to refinance your car loan for a cheaper rate when you’ve paid off some of your current agreement, so lenders can see that you have a good history of repaying and you’ve built your credit score back up.

Looking for car finance?

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Buy a car from ANY independent, FCA approved dealer in the UK

Registered with Information Commissioners Office ICO Registration Number: ZA132327

UK Car Finance Limited. Registered in England
Registered number 9397657.
Registered Office Lakeside House, 30 Northumbrian Way, Newcastle Upon Tyne, NE12 6EH

Refused Car Finance is a trading style of UK Car Finance Limited and is acting as a licensed credit broker and a lender, we are authorised and regulated by the Financial Conduct Authority, registration number 714966. All finance is subject to status and income. Applicants must be 18 or over, terms and conditions apply, guarantees and indemnities may be required.

Written quotations on request. Certain exclusions for NI residents.

Note: We cannot be held responsible for specification errors, and price errors, we use Motortrade software which is not always 100% accurate. Copyright 2017 Refused Car Finance.

Refused Car Finance can introduce you to a limited number of finance providers based on your credit rating and we may receive a commission for such introductions.

*Representative Example
Cash price – £8,500.00, Deposit – £0.00, Amount of credit – £8,500.00, Rate of interest – 16.24% per annum, Amount of interest – £6,912.00, Lender Documentation fee – £0.00, Lenders option to purchase fee – £10.00, Total charge for credit – £6922.00, First repayment – £256.70, Followed by 58 Monthly repayments of – £256.70, Final repayment – £266.70, Total amount payable – £15,412.00, Representative APR – 29.9%

*Last month, over 51% of Refused Car Finance customers that had their loan arranged were offered an APR of 29.9% or lower

In the first 3 months of this year, UK Car Finance Ltd received 2140 unique applications, of which we were able to offer 2136 applicants a line of credit, subject to the applicant being able to provide acceptable proof of affordability, being free from insolvency and or/a supporting guarantor fitting the lenders eligibility criteria, this represented 99.8% of applicants in this period.

Rated No.1 for car finance in the North East of England collated from Google Business Reviews

Refused Car Finance Reviews

4.92 Average

130 Reviews

I have dealings with other finance companies before who provide a reasonable service but I found the staff at refused finance went the extra mile in finding me a suitable vehicle from a reputable dealer. I needed a lot of help and assistance and they were always willing to accommodate my needs even when I was being indecisive. I had 1 broker in particular who stands out, Jacob, Jacob did a fantastic job and always found solutions to problems I encountered, without his commitment to customer care I may have given up. I will definitely be recommending your company and Jacob in particular. Thanks guys I don’t know what I would have done without you.

Brilliant service from Lewis and Michael. Very friendly and helpful, really happy with finance and car.

Very quick and easy process and staff are friendly all in all was a good experience I would definitely recommend