A new or used car is an expensive purchase and is something that’s designed to last you for years. So, it’s no surprise that car finance - which allows you to spread the cost of purchase over a longer period - is popular in the UK.
There are many different forms of car finance, and we’ve summarised the pros and cons of each in our article on how car finance works in the UK.
We’re doing something different in this article though, which aims to answer one of the most frequently asked questions: what’s the minimum score I need in order to get car finance?
The short answer is that there is actually no “minimum score”, for a number of reasons which we’ll explain in this article. In fact, almost all borrowers will be able to access some form of credit to finance a car, but it’s certainly true that a good credit history is helpful.
So in this article, we’ll demystify credit scores and explain how you can give yourself the best odds of securing car finance.
If you want to skip ahead though, you can look at some of the options available to you right away. Our loan calculator is a great place to start.
What credit score do you need to finance a car?
Before we answer this one, let’s consider what a credit score really is.
When deciding to offer you a loan, lenders want to know whether you’re likely to pay them back. They don’t have a crystal ball, so most of them do the same thing you would if you were trying to work out which horse to bet on: they look at form - your track record.
They reason that a borrower who has paid off lots of loans already is a pretty good bet: he or she has shown him or herself to be capable of managing debt well.
Credit reference agencies
There are hundreds, if not thousands, of lenders out there, and they don’t all keep tabs on every would-be borrower in the UK. Instead, they get this information from credit bureaus, also known as credit reference agencies (CRAs). In the UK, there are three agencies: Experian, Equifax and TransUnion.
Lenders will generally have a set of criteria that they’re looking for in customers: one lender might think that borrowers with a credit card and a bank account that’s three years old are a good bet, while another might have a different view, and favour borrowers who have nearly paid off their mortgages.
Lenders purchase information on borrowers through these CRAs and look for borrowers who tick their boxes. Here’s the important thing - they’re looking at your whole credit report, not just your score.
So what’s my score for?
Your credit score is actually just a simplified representation of how creditworthy the agency thinks you are. And the funny thing is, each of the credit reference agencies will give you a different score, and that score will be on a different scale.
There’s no “minimum score”
Because of this, it’s impossible to give a minimum score. In fact, a lender might approve one borrower with an average score, and later decline a second borrower with a higher score. But it’s certainly true that in general, a higher credit score reflects a borrower who is likely to be accepted by more lenders, and will have access to larger loan sizes and lower interest rates.
How to improve your chances of getting car finance
There are several things you can do in order to improve your chances of getting car finance. Here’s an overview:
Improve your credit score
Improving a poor credit score can take years, but there are a few quick fixes that can have an impact much faster than that. In particular, it’s worth making sure that you’re on the electoral roll, and checking your credit file for mistakes or fraudulent activities which could count against you. There’s a brilliant guide to this here.
Reduce the amount you want to borrow
Lenders are much more willing to lend you a small amount than a large amount. That stands to reason: would you feel more comfortable lending your neighbour £10 or £10,000?
The differences don’t need to be that huge though - for example, finding a car for £7,000 rather than £8,000 (and borrowing £1,000 less as a result) could make a real difference, and will almost certainly reduce the amount of interest you pay too.
Of course, saving money on a car is easier said than done - Motoring Research has a detailed guide with some great insider tips.
Find an Open Banking lender
Open Banking lenders are able to securely view your bank account data - with your permission - to check your income and outgoings. As a result, they can get a precise picture of how affordable a given loan is for you - amazingly, mainstream lenders can’t verify this information.
This means that Open Banking lenders (such as Koyo - representative APR 27%) are able to base lending decisions on affordability - your current circumstances - rather than relying on what someone else says about you.
That’s great news for people who might not have a great credit score but could still comfortably afford repayments on a loan. And it can be particularly useful for young drivers, who haven’t had a chance to build up a strong credit score yet. For more information, take a look at our full guide: Open Banking explained.
There are hundreds, if not thousands, of car finance providers out there, so one of the simplest ways to increase your odds of getting finance is to shop around.
One caveat here - when you apply for credit, some lenders will make what’s called a “hard search”, which is visible on your credit report. Having too many of these can act as a red flag to other lenders when they carry out a credit check, but happily, many lenders do what’s called a “soft search”, which doesn’t leave a footprint (making an application with Koyo does not affect your credit score, for example).
You can also use an eligibility calculator, which will help show you which deals you’re likely to be accepted for, saving you time and potentially protecting your credit score too. Sadly this will only show results for personal loans though.
What are some ways to finance a car in the UK?
We’ve covered this in full in our article on how car finance works in the UK, but here’s a quick summary of the most popular types of car finance:
Personal loan: probably the simplest option. Borrow an agreed amount and use it to purchase the car. Make monthly repayments until you’ve paid off the total amount, plus interest. You own the car outright from day one, so you can drive it as much as you like and sell it whenever you feel like it.
Hire purchase: pay a deposit, and then monthly payments for an agreed period. You can use the car from day one, but until you make the final payment, you don’t legally own the car.
Personal contract purchase (PCP): pay a deposit, and then monthly payments (which are smaller than they would be with a HP agreement). At the end of the agreement, you have a choice: make a final payment and own the car outright, or walk away (and potentially switch to a new car). As with HP, you don’t own the car until the final payment is made, and you will face mileage restrictions.
All three of these finance options are available from car dealers as well as independent finance providers and banks and are available for used cars as well as new ones. And each of these finance agreements are regulated by the Financial Conduct Authority.
What to do if you get rejected for car finance
First things first: don’t panic!
Finance applications get rejected all the time, so try not to take it personally. As we’ve explained above, there are hundreds of different credit providers, each of whom has different credit criteria. As a result, getting rejected by one doesn’t mean that you’ll be rejected by all: in most cases, you’ll just have to do some more shopping around.
In fact, you can be rejected for a number of reasons not directly linked to your credit score, for example:
You might not meet the lender’s commercial criteria.
There might be a mistake on your credit file.
The lender might not think the loan is affordable for you.
We go into more detail in our article on reasons for personal loan rejection, but the steps you can take are:
Check there are no mistakes on your credit file (you can view your credit file for free from each of the 3 UK CRAs).
Try another lender or finance option (making sure not to make too many applications which lead to hard credit searches - explained above).
Try borrowing a lower amount.
Most of all, take comfort that even people with the maximum credit score will be rejected by some finance companies.
FAQ: what credit score do I need to finance a car?
In this section, we’ll do our best to answer some frequently asked questions about scores. Important note: each CRA will give you a different score, and that score means different things for each CRA. To simplify, we’ve taken three sample scores and explained what they mean for each of the three agencies.
Each agency splits its scores into five potential categories - here’s what that means in practice:
Can I get a car loan with a credit score of 600?
Here’s how the three CRAs would categorise a credit score of 600:
With an Experian or Equifax score of 600, it’s likely that a borrower would struggle to access credit, but would still be able to borrow from some lenders, albeit at higher interest rates than borrowers with a stronger credit history. The loan amount would also be restricted.
A score of 600 from TransUnion ranks as fair, so while you wouldn’t have your pick of the best deals, you should still have a range of options to choose from.
Can I get a car loan with a credit score of 550?
A credit score of 550 from Experian or Equifax is categorised as very poor, and 550 is right on the threshold between poor and very poor for TransUnion. While it’s likely that a borrower with this credit score could still access credit, it’s likely to be at an even higher cost, and from a smaller pool of lenders, meaning less choice and less flexibility.
Can I get a car loan with a credit score of 300?
300 would be considered a very low score with any of the three credit bureaus. It’s likely that someone with a credit score at this level would have had difficulties with credit (such as CCJs) in the past, making it quite difficult to get credit of any kind.
It’s likely to be very challenging to access credit with a credit score around this level.
As we’ve explained above, if your score falls into any of these ranges but you can still comfortably afford repayments, then it may be worth looking at Open Banking lenders, who are able to focus more on affordability than your credit score. And more generally, you can take a look at our guide to getting a car loan with a bad credit score.
What started as a simple question ended up as a complete unpacking of credit scores.
Hopefully, this article has demystified credit scores and made the process of applying for a loan more transparent. If there are any questions that we haven’t answered, let us know in the comments section below.
And, now that you know how credit scoring works for car finance in the UK, you might want to take a look at some of the options available to you when purchasing your next car. Our loan calculator is a great place to start.