What credit score do you need to buy a car?


author image-sarah
By Sarah Watts
Updated on Monday 17 May 2021

A man hugging the bonnet of his new car

So you’ve decided to treat yourself to a new car and need to borrow money to do so, but do you need a good credit score to finance a brand-new car and do you know how much you’ll be able to borrow or whether or not you'll be accepted?

Here's everything we cover in this guide to help you learn more about how your credit score can have an impact on getting a new car:

Do you need a decent credit score to buy a car?

Whilst a good credit score will improve your chances of getting a car loan and will mean you are usually offered better deals, it’s not the be-all and end-all when it comes to car finance.

In fact, you could have an excellent credit score for car finance but be refused credit for another reason.

There is no set credit score you need to have in order to buy a car on finance. Lenders will, of course, check your rating when you initially apply for a loan but will additionally undertake many other checks when assessing your application.

Other factors lenders may check include:

  • How much you earn
  • How much debt you have
  • How you’ve managed debt historically (i.e. made payments in full and on time)
  • If you’re registered on the electoral roll
  • Your employment status
  • If you own or rent your home
  • How many unsuccessful credit applications are shown on your credit file

To help improve your chances of a loan, before you buy a car, you should make sure your finances are in order. You should check your credit score and history with the UK’s four main credit reference agencies, Equifax, Experian, TransUnion and Crediva.

You can check your credit files for free with all four agencies at the same time by using checkmyfile.com.

If you discover you have a low credit score, then you should look at ways to improve your credit score immediately before applying for finance.

Can you use your credit card to buy a new car?

Yes, you can purchase a car using a credit card, but this is a rare choice of credit when buying a car. It can certainly be a good option if you keep costs low by using a 0% APR credit card, but you should make sure you can afford to pay off the complete balance before interest starts being added after the 0% interest-free period.

More common and popular forms of car finance are:

Personal Loan (PL)

Taking out a personal loan, usually from a bank or building society, is perhaps the most flexible way to finance purchasing a car.

The pros and cons of a personal loan

Pros

Cons

  • You own the car straight away
  • You can shop around
  • You can set the term of the loan
  • You don’t have to pay a deposit
  • You don’t have to worry about a final balance payment
  • Can be more expensive (APR rate)
  • Better deals (lower rates) are usually only offered to people with good credit scores
  • Can take longer to arrange than other types of finance
  • Car’s depreciation in value is costly

Hire purchase (HP)

One of the most popular methods of financing a car is by getting a hire purchase agreement. If you finance buying a car in this way, it means you will have to pay a deposit (typically 10%) and then make fixed monthly payments.

The pros and Cons of HP

Pros

Cons

  • Can be arranged directly with a dealer
  • Fixed monthly payments
  • Once you’ve paid off 50%, there’s a chance you could return the car and have to pay nothing more
  • You do not own the car straight away
  • If you miss several payments, the car can be repossessed
  • Can cost more than a personal loan 

Personal Contract Purchase (PCP)

Very similar to Hire Purchase, a PCP agreement means that you pay a deposit and payments for a fixed term. However, a PCP gives you more choices when the loan comes to an end as you can choose to buy the car by paying a lump sum, exchange it for another model or simply return the car and leave empty-handed.

The pros and cons of PCP

Pros

Cons

  • Can get a better [newer] car for your money than by other finance methods
  • You can own the vehicle at the end of the term by making a balloon payment
  • Can be repossessed if you default on payments
  • You do not own the vehicle until the end of agreement when you pay a lump sum. If you choose not to do this, you never own the vehicle

Conditional Sale (CS)

Similar to HP and PCP but with a Conditional Sale Agreement, you’ll own the car outright at the end of the agreement term without having to pay an additional payment.

The pros and cons of CS

Pros

Cons

  • Easy to arrange
  • Own the car at the end for no extra fee
  • The flexibility of loan term
  • CS allows you to buy a car with bad credit
  • Do not own the car until the end of the term
  • Usually more expensive than other forms of car finance
  • Need permission from the lender to modify or sell car
  • The car gets repossessed for non-payment

Personal Contract Hire (PCH)

Personal Contract Hire (also known as personal leasing) means you will never own your car, even at the end of the agreement.

You have to pay a deposit, which is typically the amount of three months’ payments in total, and then continue to pay a fixed monthly fee for the remainder of the term.

The pros and Cons of PCH

Pros

Cons

  • Costs less than HP or PCP
  • Can regularly change your car
  • Some deals allow you to include the cost of services in monthly payments
  • Car depreciation is not an issue
  • You’ll never actually own the car
  • If you default on payments, you’ll lose the car
  • Extra charge for excess mileage
  • Early termination fees

Is buying a car a good way to build up your credit rating?

Yes, if you fund the purchase of a car by borrowing money and ensure you always pay your loan repayments (or leasing payments) on time and in full then this will enhance your credit rating and increase your eligibility for other loans and credit cards.

If you have a bad credit history and want to borrow money to buy a vehicle, then your best bet is a Conditional Sale Agreement.

Note: If you apply for a car loan and are unsuccessful, a hard credit check is usually noted on your credit file and too many hard credit checks in quick succession can severely damage your credit score. If you apply for a loan and a hard check is made on your credit file, then you should wait around 3 months before applying for another loan. If lenders check your credit file(s) and see that you have unsuccessfully applied for more than one loan prior to your application with them, they will think you’re high risk and will refuse your application.

How much money can I borrow to buy a car?

How much you can borrow to purchase a vehicle depends on:

  • Your credit score
  • Your credit history (how well you have managed previous loans)
  • Income
  • How much deposit you pay (if applicable)
  • The cost of the car
  • Your budget
  • The APR
  • A quick and easy way to assess how much you can borrow is by using an online car finance calculator (Autotrader).

Before using this car finance calculator, you will first need to check what your credit rating is. Because your credit rating can vary between agencies and different lenders use different credit reference agencies, it’s best to check your score with all four.

You then need to input your credit rating, how much you want to borrow and the term length and click on the “apply now” button.

Using this method to check your eligibility and how much you can borrow will not impact on your credit score as only a soft search will be made. A soft search (unlike a hard search) means that other lenders will not be able to see you’ve applied for a loan; only you can see soft credit checks on your file(s).

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