No credit check car loans aren’t available

Car finance companies must only lend responsibly by ensuring they assess applicant creditworthiness and affordability. As such, a credit check will always be required.

It may be possible to get a logbook loan without a credit check, although these are risky and expensive.

The good news is that plenty of specialist lenders aim to help car buyers with bad or limited credit.

Below, we explore the options for motorists with bad credit who are looking to be approved for a car loan.

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What is bad credit?

Your credit score is a figure based on the activity in your credit report, used by lenders to assess how reliable you’re likely to be as a borrower.

The score is calculated by credit reference agencies. There are three major agencies used by lenders in the UK (Experian, Equifax and TransUnion) and it’s possible each agency will rank you differently. What’s more, each lender has different tiers for “very poor” and “poor”.

The main thing to remember is: the lower your score, the harder it will be to be approved for credit. You can learn more in our guide on dealing with bad credit.

Eligibility check vs application

Some lenders may offer an eligibility check service, which will indicate if you’re likely to be approved for a car loan. This requires you to fill in a few basic financial details. It may involve no credit check or a “soft” check, which has no impact on your credit score.

Even if your eligibility check suggests you’re eligible for a car loan, you’ll still have to submit a full application. This application will require more personal and financial details, including a full credit check, and you may be declined a loan based on this extra information.

What are my options?

• Bad credit car loans.There are some car loan companies that specialise in offering finance to motorists with bad credit. However, the interest rate, fees and terms might not be as favourable as those offered by traditional car finance companies.
• Bad credit personal loans. Don’t want to risk losing your vehicle? Consider applying for a bad credit personal loan and spending the money on a car.
• Guarantor loans. There are both car loan and personal loan companies that will allow you to add a guarantor to your application. This extra security will improve your chances of being approved for a loan, especially if your guarantor has a strong credit score.
• Credit cards. There are many credit cards aimed at applicants with bad credit. The rates on these tend to be extortionate though, and the credit limit is usually lower than most traditional credit cards, so you’ll only be able to afford a cheap car with this option.

What factors do lenders consider?

No matter which of these alternative credit sources you choose, your lender will consider all of these factors as well as your credit score.

• Proof of your ability to repay.The lender will ask questions about your income and outgoings, and may want to check your recent bank statements. A low debt-to-income ratio will help prove you’re able to handle the monthly payments.
• Proof of steady employment.It’s likely you’ll be asked a few questions about your job. You could also be asked to submit your most recent payslips.
• A sizeable deposit. The less you have to borrow, the better. A big deposit on a car loan also indicates you’re financially responsible enough to have savings in the bank.

If these factors are all in good shape, you’ll be far more likely to be approved for a loan with a bad credit score.

What are the drawbacks of car loans with poor credit?

Consider these potential pitfalls before taking out a car loan with poor credit.

• Higher interest rates. Lenders who offer loans to applicants with poor credit often hike up the interest rates to cover the added risk of default.
• Longer terms.Longer terms combined with higher rates mean you could easily end up paying multiple times your car’s value before the loan is paid off.
• Risk of repossession. If you’re late enough on your car loan repayments, you could end up losing your vehicle.

Dos and don’ts

Frequently asked questions

• How do I find a reputable lender?

  Do your research. Check the lender has the right licences and check independent online reviews from former borrowers. Also, read the terms of the loan before applying.

• Can I take out a loan to cover the deposit?

  This may technically be possible, but you’ll have to disclose this during your car loan application, potentially harming your chances of having a loan approved. What’s more, taking on two loan repayments might make it harder to afford your regular monthly expenses.

• Will I have to pay any fees?

  Yes, so check the terms before applying for a loan. There may be an origination fee, and you’ll almost definitely be charged if you miss a loan repayment.

• How do I improve my credit score?

  There are several steps you can take to improve your credit score and enhance your chances of being approved for a more favourable car loan in the future. Our guide explains more.