It’s one of the golden questions that people seeking a finance deal for a car tend to ask: what credit score is needed in order to get approved for car finance in the UK? And there’s a simultaneously very simple and somewhat complicated answer to that question: there isn’t any single ‘required’ credit score for those applying for car finance.
But of course, if we simply ended the article there, (a) it would be a dull and short read, and (b) we wouldn’t be delving into this matter in greater detail, and giving you the information and insight you are probably seeking having landed on this article in the first place.
So, let’s take a closer look at credit scores in general, their relevance to car finance, and what you do need to know about the connection between the two, when you come to apply for credit.
Car finance remains hugely sought-after in the UK
Let’s presume you really are a complete novice when it comes to all things car finance and credit scores, and start at the very beginning. Basically, car finance provides a means by which a driver can get behind the wheel of a car by buying or leasing the vehicle. It operates much like a loan, in that you will agree to pay back regular instalments over an agreed period.
What happens after that? Well, that largely depends on the type of car finance you have. We’ve set out a summary of the main forms of car finance on the Car Finance Genie website.
To put it in a sentence or two, if you take out a hire purchase (HP) deal and complete all the payments, the car will become yours at the end of the loan term. If, on the other hand, you agree to a personal contract purchase (PCP) plan, the car won’t automatically become yours when the loan term concludes – instead, you will have the option to pay a final ‘balloon’ amount to confirm the car as yours.
In a time like the present when many of us are concerned about managing our costs in life and we might not have the money sitting in our bank accounts enabling us to buy a car with cash straight away, car finance is undoubtedly demonstrating its relevance once again.
According to the Finance & Leasing Association (FLA) – which is the premier trade body for the UK’s asset, consumer and motor finance industries – members of the organisation provided £45 billion of motor finance during 2021. This money supported the purchase of 92% of all private new car registrations – a firm sign that car finance isn’t relenting in its popularity in the 2020s.
But do you have good enough credit for the car finance deal you want?
So, you know about some of the types of car finance available on the market, and why you might seek out a car finance agreement. But especially if you have never previously applied for car finance, the chances are that you will have heard a lot about the importance of having a good credit score in order to be approved for car finance in the UK.
As we stated above, there isn’t a single ‘required’ credit score needed in order to be granted car finance in the UK. Indeed, some companies, such as ourselves here at Car Finance Genie, even specialise in providing bad credit car finance, making possible attractive deals for those who may have an iffy credit history and might have been turned down for credit in the past.
However, the fact that it might be possible for you to obtain car finance even if you have a less-than-brilliant credit score, doesn’t mean you shouldn’t care about how good your credit score is when you are seeking out car finance.
Before we go any further, let’s be clear about exactly what a credit score is. Basically, it is a score – or rating – that gives potential lenders a ‘snapshot’ of your credit history. It is, in effect, a source of information and a guide for lenders, rather than an instruction to lend or not lend to you.
So, if you apply for car finance from a given lender, they will still need to make their own decision on whether or not to lend to you – and if so, on what terms.
As you can probably imagine, if your credit score is good, the lender is likely to look upon you more favourably when you apply for car finance. They will see you as a more attractive prospect as someone to whom to lend, as they will feel more confident that you will actually repay the money in a timely fashion.
As for if you have a bad credit score… well, you will effectively be giving some potential lenders an excuse to reject you, or at least impose less favourable terms on you if they do agree to give you car finance.
So, even though there isn’t a particular number score that will ‘trigger’ a lender’s decision to definitely lend or not lend to you, it’s in your interests to strive to make your credit score as good as you can possibly make it.
In summary, here are the three main ways in which you can expect your credit score to affect your application for car finance in the UK:
- It will influence your chances of being approved for car finance at all. Having a higher credit score will improve your prospects of getting the ‘green light’ from a lender when you apply to them for car finance. That will be the case pretty much regardless of which lenders you approach, or whether you apply through a broker that maintains a network of lenders, such as Car Finance Genie.
- It will affect the car finance options that are available to you. There’s no question that a strong credit score will also help expand the possibilities for you when you seek out car finance. Let’s imagine, for instance, that there’s a relatively expensive performance or executive car that you’re considering applying for car finance for, and your monthly payments will therefore be higher than would be the case if you were simply seeking a humble city runabout. In this situation, the likelihood of you getting a positive response to this request from the lender will be much greater if your credit score is good.
- It will make a difference to the interest rates you are offered. Anyone who has ever taken out a loan will know how crippling interest payments can be when they are high. Again, having a good credit score that reflects you being a reliable and low-risk borrower will boost your chances of being offered attractively low interest rates on a car finance deal.
I have a credit score of 600 – will this be good enough for me to get car finance?
Here at Car Finance Genie, we constantly receive questions from potential car finance applicants along the lines of the above, citing a specific credit score – 600, perhaps, or even 700 or 800 – and then asking us whether that will be ‘enough’ for them to get approved for car finance.
But it’s never as simple as that – for one thing, because there are multiple credit reference agencies (CRAs) in the UK, and the scoring systems vary from one CRA to another.
The three main CRAs in the UK are Equifax, Experian, and TransUnion – but what counts as an ‘excellent’ score with one credit reference agency may only count as a ‘fair’ (medium) or ‘poor’ score with another CRA. Your own credit score, then, will not be the same at all the different agencies. And lenders will vary in terms of the specific CRA that they use, and the other criteria they might have for deciding whether to lend to you, and on what terms.
Phew! You can probably begin to see why it’s not just a case of a single number determining whether you will or won’t get car finance.
So, what other criteria might be used to determine whether I can get car finance?
Again, it is important to emphasise that no lender is likely to have exactly the same approach as another when deciding on whether to grant an applicant approval for car finance.
Still, the following are some of the factors that a given lender may well consider when assessing how much of a risk you are as someone to lend to:
- Your credit history. As we explained above, your credit score is a reflection of your credit history anyway, but a would-be lender won’t necessarily just look at the number itself when making a decision. You might not have been aware, for instance, that any public court records – such as bankruptcy or County Court Judgements (CCJs) – will continue to show up on your credit history for years When a lender sees negative markers like these, they may be less willing to approve car finance for you on favourable terms, as such events would suggest that you have struggled with debt issues in the past.
- Income and outgoings. It’s one thing to have a track record of paying back all your previous credit – but what about your ability to afford the repayments on this specific loan? You should, of course, be acting responsibly and taking your own steps to assess your budget and make sure you can afford the car finance deal you’re seeking to take out. But the lender is also likely to perform its own affordability checks, looking at your income and outgoings to make sure you will probably have enough money left over each month to be able to afford the loan.
- Credit utilisation ratio. This is a measure of how much of your available credit you have used. Let’s say, for example, that you have £3,000 in available credit and you have used £1,500 of it; that would give you a credit utilisation ratio of 50%. As for what would constitute an attractive credit utilisation ratio from a lender’s perspective, around 25% or less seems to be the ‘sweet spot’. This would indicate that you have credit available and make use of it, but you don’t depend on it.
- Debt-to-income ratio. This ratio is about how big your debt repayments are when compared to your monthly earnings. It tends to be expressed as a percentage, and lenders will look at it to help them determine whether you are likely to be able to cope with the monthly repayments on the car finance deal you have applied for. A lower debt-to-income ratio, then, is good news for your chances of being approved for car finance on attractive terms.
Your credit score is important – but it’s not the only thing that will affect your application
Hopefully, if you’ve read all of this article, you will now appreciate that your credit score will definitely be a powerful factor when you seek to obtain car finance. But you will also hopefully appreciate that it isn’t the only factor influencing your likelihood of a positive response to your application, and that there’s no single credit score that will make the difference between success and failure.
So, what can you do to bolster your chances of getting a “yes” in response to your car finance application?
Firstly, if your credit score isn’t quite as good right now as you wish it was, and you have the luxury of doing so, you might want to hold off on your car finance application until you have improved your credit score to a certain degree.
There are various both quick and longer-term ‘fixes’ for increasing your credit score in the UK, ranging from registering to vote, to minimising the number of credit applications you make. We can help you with the latter here at Car Finance Genie, through our use of ‘soft searches’ that will not leave a mark on your credit file. Indeed, we will not carry out any ‘hard searches’ – the type that will leave a mark on your credit file – without your permission.
There you have it – a comprehensive rundown to the situation with credit scoring when you come to apply for car finance, quite apart from the matter of what credit score you might ‘need’ in order to access finance. If you are on the lookout for such a deal, why not apply today through our specialists at Car Finance Genie, so that you can receive a free no-obligation quote?