What to do if you can’t get car finance

If you have a poor credit history or have suffered a bankruptcy in the past, you may experience some difficulty in securing a car finance agreement. However, there are multiple lenders willing to offer you the chance to pay for your car in monthly instalments and many ways available to boost your credit score and improve your chances of being accepted.

If you don’t possess a lump sum and you’re looking to spread the cost of a used or new car purchase over several months, car finance can be the easiest method of achieving this. Rather than paying everything upfront yourself, a finance company will allow you to divide the cost into amounts that are manageable in regular instalments paid monthly.

From Hire Purchase (HP) and Personal Contract Purchase agreements (PCP) to personal loans and conditional sale, there are many different finance products available. You may come across the term ‘guaranteed finance’, which can be very tempting when you’re worried about your credit score being weak. In truth, no finance company can guarantee that an application will be successful before they’ve examined your details, which all have a bearing on whether you get accepted. So, if you see the term ‘guaranteed finance’, it’s best to be cautious.

Read through the following sections where we outline what to do if you can’t get car finance, ways to improve your credit score and alternative options you may not have considered. Everything you need to know when you’ve been refused for a car finance deal can be found right here.

Possible situations in which you can’t get car finance

Applicants are turned down for a variety of different reasons. Each lender has its own specific criteria and requirements it uses to decide if it’ll give credit or not, so it’s essential you get in touch and find out why you were rejected.

A simple reason for refusal can be if they’re unable to confirm your address. This can occur if you’re not on the electoral register or have recently changed your address or name and omitted to inform the lender. Sometimes, a simple mistake on a form can mean they can’t trace you.

Finance companies like to see you’ve successfully taken out credit and repaid it. If you’ve never used finance or credit of any kind, you won’t have a bad history, but no history at all to provide a rating with which they can assess you. If this is the case, you may be refused finance. In some cases, finance companies have a target customer they lend to – this can be low, or high-income individuals and you might not fit their specific criteria.

If you’ve got a less-than-perfect rating when it comes to credit, it’s still more than possible to acquire a car finance deal, but it’s worth remembering that you’re likely to get worse rates of interest than someone applying with an excellent credit score.

You can’t get car finance if you’re bankrupt, and to acquire the credit required for a car purchase in this situation is against the law. However, if your bankruptcy has finished, once you’re discharged, you can make an application for finance. Bankruptcy typically lasts for a single year - with confirmation of your bankruptcy remaining on your credit report for at least six years - and when it has ended you’ll be sent an official letter stating you’ve been discharged.

If you’ve failed to make payments in the past and have a default registered against you, this could also lead to you being refused finance.

What to do if you’re refused car finance

As a rule, you should keep your applications for credit at a minimum – no more than one application every three months is a wise idea. Make sure all your credit information is always up to date with a credit report service and ensure you’re on the electoral roll to help lenders in confirming your identity.

It’s also a good idea to keep track of your credit history and regularly check your progress as you rebuild your credit rating. Most credit report services are updated monthly. You can build up your rating with small kinds of credit that are more affordable with simple repayment structures, showing an improved history to lenders.

If you’ve been refused credit for car finance, the first important step is to discover why you’ve been rejected before any future applications. Multiple applications for credit that are made and rejected will harm your credit rating and lower your chance of approval.

Before making an application for finance following a bankruptcy, it’s worth taking 12 months to rebuild your credit rating, as looking for credit too quickly will impact your application negatively. The bankruptcy will also have affected your credit rating badly and until you’ve repaired the damage you won’t be offered the best interest rates, which will cost you financially.

To improve your chances of obtaining finance following a default, you can add a ‘notice of correction’ to your credit file for lenders to read when reviewing any applications for car credit. This notice is a 200-word statement where you personally explain why you defaulted and gives you an opportunity to clarify how the situation came about. If you’ve got a default like this, it’s a good idea to get in touch with the unpaid lender and set up a payment plan, regardless of how small the instalments are. A reduction in your default balances and your desire to pay back will stand you in better stead with future lenders.

What credit score is needed to buy a car?

The credit score required will vary from lender to lender when buying a car. While a lower score will mean you won’t secure the best rates of interest, it won’t always stop you from securing finance. Figures from Experian suggest that the average credit rating for new car finance is around 700 and about 650 for used car. However, its statistics also indicate that 20% of loans for car go to people with credit ratings lower than 600 and close to 4% are received by people with a score lower than 500.

There are even lenders who specialise in getting loans for borrowers with poor credit ratings, but such finance agreements usually come with much higher interest rates as well as less favourable terms than the deals available to people who qualify with better credit scores.

How to buy a car with a low credit score

If you’ve got a low or poor credit score, there are still steps to take to ensure you can buy a car more easily.

One of the simplest avenues open to you is saving up a larger deposit before making your application for finance, and while this can take a little time, it can have a positive impact on your chances. By offering a larger deposit to the finance company, you become a smaller risk in their eyes. This is because not only have you put down a larger initial payment, but you’ve effectively made your monthly payments smaller in the process. If your lender feels more confident that you can pay the monthly amounts, they may be more likely to offer you a finance product.

The other option is to improve your credit score before making an application for car finance. Ensure you’re on the electoral register and that all your credit and debit cards are associated with your current address. If you’ve defaulted on loans in the past, contact your creditors and arrange a payment plan. Whenever possible, pay any outstanding balances. Consider writing a notice of correction and adding it to your credit file to explain your situation to potential lenders.

Taking out smaller amounts of credit and paying them back accordingly will also boost your rating. Rebuilder credit cards have been specially designed to help people restore poor credit ratings and are a good place to start. Setting up direct debits for all your utility bills can also show your ability to responsibly keep up with regular payments.

Always stagger your applications and don’t make too many at once while keeping an eye on your credit history. Try and wait until it starts to show signs of improvement before making any further applications. ClearScore offers a free service where you can check your current rating and see how you might look to lenders.

What about alternative car financing options

Dealership car finance has traditionally been the most typical method to pay for a car, but there are other ways of acquiring vehicle finance deals that can be much simpler. Online brokers often have their own group of lenders handpicked to help when people are struggling to secure a car loan. Brokers can get you approved before you even walk into a dealership, taking a lot of stress out of the situation as you can visit dealerships with the knowledge you have the means required to pay, and a clear idea of exactly what your budget is.

This method of getting your approval in place beforehand can offer you more control, as well as a greater chance of acceptance. Whereas a dealership will normally work alongside just a single lender, making their criteria rather strict, brokers have a wider selection of lenders allowing them to match your individual circumstances to a finance company likely to accept you.

Always look at all the options available on the market before making your choice. As with buying any product, a good selection of quotes collected from solid research is the best method to buy.