Could I get car finance?

Spread the cost of a vehicle with monthly payments: check out what you need to do to secure car finance

BuyaCar team
Apr 30, 2022

In the past, the vast majority of drivers bought a car with cash or a bank loan. However, in the 21st century, car finance is by far the most common way to access a new car. In 2021, more than 90% of new cars were bought using a form of car finance, according to the Finance and Leasing Association. The popularity of car finance is surging amongst used car buyers, too.

Finance applications are based on three main criteria: the car you’re getting, your credit score and whether the payments are affordable. We’ve set them out in more detail below. The last bit is the most important: if you can show that the monthly payments are affordable for you, then there’s a reasonable chance of getting approved for finance.

A strong credit history will help you to get the lowest interest rate - meaning lower monthly payments should be possible - but young drivers and those with previous missed payments may also be eligible. Guarantor car finance is another option for young drivers and those with lower credit scores. 


Getting car finance: affordability

Being able to repay a loan is the most important factor in being accepted for car finance. Lenders are obliged to take this into account and will take it seriously, as it’s in everyone’s interest that a finance agreement is affordable. It makes it more likely that the lender will be repaid and that the customer is able to keep using a car for the whole length of the contract.

Finance firms assess a customer’s ability to make repayments without getting into financial difficulties, and while meeting other essential financial commitments. These typically include items such as rent or mortgage repayments, food costs and household bills.

It’s possible to adjust monthly payments by increasing the deposit or extending the contract length, but this may not be the best option for all customers. In some cases, a cheaper car or a different type of finance arrangement may be a better option.


Getting car finance: credit score

Credit scores, or profiles, are designed to gauge the likelihood of an individual repaying a loan, so they have a big influence on whether you are accepted for finance and the interest rate that you may be offered.

They are based on your history of finance and loan payments, as well as your current status. These factors are then crunched into a single number that is used to assess finance applications. The higher the number, the better the score and the more likely you are to be accepted for finance at a low rate of interest.

Your credit score can be boosted if you have a record of borrowing money and repaying it on time. As well as loans, this can include credit cards. On the other hand, regular missed payments will lower your score. Loan defaults and county court judgements (CCJs) will have a severe effect on your rating.

Your current situation has a large impact on your credit score because lenders value stability. If you are listed on the electoral roll, have remained at one or two addresses for several years and have a steady job, then this will be reflected in a higher rating.

Making several formal finance applications over a short period of time can lower your score because it can seem as if an applicant is desperate for a loan, which raises alarms.

This doesn’t mean that you can’t compare quotes, though. Lenders are able to carry out a so-called soft search, which can estimate your chances of being accepted, and the interest rate that you’ll be offered, without affecting your credit profile. Making lots of unsuccessful finance applications may affect your score too.

Credit scores will also take into account your current situation, as lenders value stability. So if you are listed on the electoral roll, and have remained at one or two addresses for several years and have a steady job, then this will be reflected in a higher credit score.


How your car choice affects your finance options

Virtually any car can be bought on finance but - depending on its age, you may not find that all finance formats are available to you.

Most cars are available with Hire Purchase (HP) or Conditional Sale finance. It’s easy to understand; the cost of a car is split up into a deposit, followed by a series of equal monthly payments - plus interest. Once all the payments are made, the car is yours.

However, the most popular type of finance is Personal Contract Purchase (PCP), which offers more flexibility and lower monthly payments. That’s because your payments don't cover the full cost of the car - just the difference between the initial price of a car and its predicted value at the end.

Once you’ve made the final monthly payment with PCP, you can either hand the car back and get another one, or make the large, pre-agreed optional final payment to buy it. Because it’s difficult to estimate the future values of older cars, lenders rarely offer PCP on vehicles that are more than five years old.

One other option is leasing, which technically isn’t car finance at all. Instead it's more like long-term car rental, where you make fixed monthly payments and then return the car at the end of the contract term. It’s normally only offered on brand new cars and can require drivers to have relatively high credit scores.


Getting car finance with no deposit

If you don’t have the immediate funds to put down a deposit on a new or used car, it’s normally possible to take out no-deposit finance. This will often mean that you can take delivery of your car and have nothing to pay for a month.

You’ll generally need a high credit score to be eligible for no-deposit finance and you’ll need to be able to afford the monthly payments, which will be higher than if you had put down a deposit.

It’s likely that you’ll pay more in the long run because you’ll be borrowing the full value of the car, increasing the amount of interest that’s payable. Making a deposit reduces the amount of money that you borrow and consequently the amount of interest that builds up.


Getting car finance with poor/bad credit

A poor credit rating doesn’t necessarily mean that you’ll be refused finance, but you are likely to have to pay a higher interest rate to access this. As with all types of finance, you’ll need to be able to show that the repayments are affordable under your current financial circumstances.

It also helps to have a bigger deposit to pay upfront, as this means that you're borrowing less money overall. Reduce the amount you're looking to borrow and this may result in more lenders being willing to offer finance, potentially reducing the interest rate that’s available, too.


Getting car finance as a young driver

Without much experience of borrowing and repaying money, it can be difficult for young drivers to build up their credit score. Some lenders are willing to lend based on a limited credit history - as long as repayments are deemed affordable.

Guarantor finance is often a possibility too. Parents can guarantee the finance agreement, becoming liable for payments if a young driver fails to make them. This can open up lower interest rates.


Getting car finance without a permanent job

Lenders don’t require a steady monthly salary for finance, and are used to considering applications from freelance workers, or those with multiple jobs.

You’ll still need to demonstrate a regular level of income that will cover your finance repayments and essential outgoings, though this doesn't have to be as simple as fixed costs and one permanent job.


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