It's no secret that a poor credit history can be problematic. For the most part, the best mortgage deals, best car finance deals and best personal loan deals are offered exclusively to applicants with good credit scores.
However, bad credit needn't necessarily count you out of the running. At least, as far as affordable car finance is concerned.
With the majority of major High Street lenders, car finance with bad credit simply isn't an option. It's a cut and shut issue - pass their initial credit checks, or rejection is guaranteed. Irrespective of the rest of your financial position, the credit rating system is king.
Personal Loans for Vehicle Purchase
A personal loan can be an affordable option for financing a new or used vehicle purchase. Particularly with UK interest rates as they stand today, which are just about as low as they've ever been. Nevertheless, eligibility for unsecured personal loans is almost always measured on the applicant's credit history.
With most High Street lenders, unsecured personal loans tend to be the only vehicle finance options available. This is precisely why scoring a good car finance deal with bad credit means looking beyond the High Street.
Exploring the Alternatives
Contrary to popular belief, purchasing a vehicle with poor credit doesn't have to mean compromising on quality or affordability. It simply means making sense of the available options. Right now, there are three primary access points to vehicle purchase offered by specialist lenders across the UK.
All open to poor-credit applicants, all with their unique advantages to consider.
Hire Purchase (HP)
For example, the hire purchase (HP) agreement remains the most popular car finance option in the UK by a significant margin. Hire purchase involves paying a deposit as specified by the service provider, followed by a series of monthly repayments over a period of 2 to 4 years. At the end of the term, ownership of the vehicle is transferred to the customer.
Benefits of hire purchase:
• No lump sum cash payments
• Comparatively low monthly repayments
• Open to poor-credit applicants
• Transfer of ownership at the end of the term
Personal Contract Purchase (PCP)
A personal contract purchase (PCP) agreement is similar, though with one key difference. At the end of the term, the customer has the option to take ownership of the vehicle by making a final ‘balloon' payment, upgrade to a newer car and continue their monthly repayments or hand back the keys and walk away. Again, deposits are payable to enter into PCP agreements, followed by a series of even lower monthly repayments.
Benefits of personal contract purchase:
• The lowest possible monthly repayments
• Flexibility to return or purchase the vehicle
• Update to a newer vehicle regularly
• Open to poor-credit applicants
Leasing
Of course, there's always the option of leasing a car, if outright ownership is not a priority. Leasing again involves an initial deposit and a series of monthly repayments, though at all times the vehicle remains the property of the service provider, with no option to purchase it.
Benefits of leasing a car:
• Up to 60% lower monthly payments versus buying a car
• No maintenance or repair costs to worry about
• The option to drive the latest cars at an affordable price
• Open to poor-credit applicants
Consult with a Broker
In a nutshell, poor credit doesn't have to stand in the way of accessing affordable vehicle finance. You may have little luck on the High Street, but there are plenty of alternative options to explore.
Simply contact an independent broker, use a car finance calculator to determine how much you can afford and ensure you target the most appropriate lenders.
