Getting Car Finance with Bad Credit: UK Options & Rates

Bad credit doesn't mean you can't finance a car, but it does mean you'll face higher costs and fewer options. As dealers who've helped hundreds of customers in Hexham and across Northumberland secure finance, we see this situation constantly. The key is understanding what lenders look for, what rates to expect, and how to avoid predatory deals.

This guide covers everything you need to know before signing any agreement—from typical APR rates (15-25% for bad credit) to deposit requirements (20-30% upfront) and which finance types are easiest to get approved for.

What Does "Bad Credit" Actually Mean?

Your credit score reflects your borrowing history. In the UK, credit reference agencies (Experian, Equifax, TransUnion) each use different scoring systems, but generally:

What damages your credit score:

• Missed payments in the last 6 years
• Defaults on credit agreements
• County Court Judgments (CCJs)
• Individual Voluntary Arrangements (IVAs)
• Bankruptcy (stays on file for 6 years)
• High credit utilization (using more than 30% of available credit)
• Multiple credit applications in short periods

Can You Get Car Finance with Bad Credit?

Yes—bad credit doesn't disqualify you. But expect:

Reality check: What changes with bad credit

• Higher interest rates: 15-25% APR instead of 6-9% (sometimes 30-40% from subprime lenders)
• Larger deposits: 20-30% of car value (vs 10% for good credit)
• Shorter terms: 24-36 months typical (vs 48-60 months)
• Lower borrowing limits: £8,000-£12,000 maximum, sometimes less
• Fewer lenders: Mainstream banks reject you; specialist lenders charge more
• More scrutiny: Expect proof of income, employment verification, bank statements

Lenders view bad credit as higher risk—you might not repay. They compensate by charging more interest or requiring larger upfront payments to reduce their exposure.

What APR Should You Expect with Bad Credit?

APR (Annual Percentage Rate) includes interest plus mandatory fees. Here's what different credit scores typically pay:

Bad credit costs you thousands. On a £10,000 car over 36 months, the difference between 7.9% APR (good credit) and 19.9% APR (bad credit) is £812 in extra interest. Over 4 years on a £15,000 car, that jumps to £2,000+ extra.

How Much Deposit Do You Need with Bad Credit?

Standard finance requires around 10% deposit. With bad credit, expect 20-30% minimum, sometimes 40-50% for very poor scores.

Why larger deposits help:

• Reduces lender risk: They're lending less, so less to lose if you default
• Improves approval odds: Shows commitment and financial responsibility
• Can lower your APR: Some lenders offer better rates with 30%+ deposits
• Smaller monthly payments: Less borrowed means lower monthly cost

£10,000 Car Example:

Despite the larger deposit, you still pay £812 more overall due to higher APR and monthly payments. But the larger upfront payment improves your approval chances dramatically.

HP vs PCP: Which Is Easier with Bad Credit?

Hire Purchase (HP) is significantly easier to get approved for with bad credit than Personal Contract Purchase (PCP).

Why HP works better for bad credit:

• Lender owns the car: If you default, they repossess it—lower risk than unsecured loans
• Simpler structure: Just deposit + monthly payments + option fee = ownership
• No balloon payment risk: Lenders don't worry about future car value
• No mileage penalties: One less thing to assess for approval
• Specialist lenders prefer HP: Most bad credit lenders offer HP, not PCP

For the full breakdown of HP vs PCP mechanics and costs, see our complete car finance guide or direct HP vs PCP comparison.

Guarantor Loans: Using Someone Else's Good Credit

A guarantor is someone with good credit (usually a family member or close friend) who agrees to make your payments if you can't. This dramatically improves your approval chances and can reduce your APR by 5-10 percentage points.

How guarantor finance works:

• The guarantor doesn't make any payments unless you default
• They're legally liable for the full debt if you stop paying
• Lenders assess both your income and the guarantor's creditworthiness
• If you default, it damages both your credit scores
• The guarantor must be a UK resident, employed, and have good credit (usually 700+)

Warning: Only use a guarantor if you're confident you can make every payment. Defaulting ruins your relationship and their credit score. They're taking a massive financial risk for you.

How to Improve Your Approval Chances with Bad Credit

1. Check your credit report first

Get your free report from Experian, Equifax, or TransUnion. Correct any errors immediately—wrong addresses, settled debts still showing as open, accounts that aren't yours. Disputes take 28 days to resolve, so do this before applying.

2. Offer a larger deposit

30-40% deposit dramatically improves approval odds and can reduce APR. If you can't afford a larger deposit on the car you want, choose a cheaper car.

3. Choose a cheaper vehicle

Apply for £7,000-£10,000 cars instead of £15,000+. Smaller loans are easier to get approved for and cost less in interest.

4. Prove stable income

Lenders want to see at least 6 months in your current job and consistent monthly income. Bring payslips, bank statements, and proof of address.

5. Use soft search tools first

Soft searches don't affect your credit score. Use eligibility checkers (Experian, MoneySuperMarket, comparethemarket) to see which lenders might accept you before doing hard searches.

6. Wait 3-6 months if rejected

Multiple applications in short periods tank your score. If rejected, wait, improve your score, and try again. Spend that time paying bills on time and reducing credit card balances below 30% utilization.

What to Avoid: Red Flags in Bad Credit Finance

Predatory lenders and scams:

• APR above 40%: You're being exploited. Walk away
• Pressure to sign immediately: Legitimate lenders give you time to read agreements
• Upfront fees before approval: Never pay application or arrangement fees upfront
• "Guaranteed approval regardless of credit": No legitimate lender guarantees approval
• Unregulated lenders: Always check they're FCA-regulated (Financial Conduct Authority)
• Hidden fees in small print: Admin charges, setup fees, early repayment penalties

Before signing anything:

• Calculate the total amount payable, not just monthly payments
• Understand all fees: arrangement, option to purchase, early settlement, late payment
• Check if APR is variable (can increase) or fixed
• Confirm what happens if you miss a payment
• Understand your voluntary termination rights (50% rule)
• Read the entire agreement—every single clause

Final Advice from Hexham Dealers

Bad credit makes finance more expensive, not impossible. The key is being realistic about what you can afford, offering larger deposits, choosing HP over PCP, and avoiding predatory lenders charging 40%+ APR.

If your credit is truly terrible (multiple defaults, recent CCJs, active bankruptcy), it's often better to wait 6-12 months, improve your score, and then apply. The difference in APR between applying now at 25% vs waiting a year for 15% can save you thousands.

Need help with car finance in Hexham?

We work with customers of all credit backgrounds. Contact us for honest advice on what finance options are realistically available to you.