TL;DR
Bad credit car finance is available in the UK through specialist hire purchase and PCP providers. APRs for poor credit applicants typically range from 15 to 40 percent. A larger deposit, 10 to 20 percent of the vehicle value, often improves approval odds. HP is generally more accessible than PCP for impaired credit. The FCA completed a major review of motor finance commission arrangements in 2024.
Last reviewed: June 2026
Buying a car on finance with a poor credit score is more difficult and more expensive than with a clean credit history, but it is not impossible. A range of specialist lenders in the UK offer hire purchase (HP) and personal contract purchase (PCP) agreements to applicants who have been declined by mainstream providers. The key differences from standard car finance are higher interest rates, larger deposit requirements and more limited choice of lenders and vehicles.
This guide explains the main product types available, how lenders assess bad credit applications, what the finance actually costs, and the practical steps to improve your position before applying.
KEY FACTS
- HP and PCP agreements are regulated by the FCA under the Consumer Credit Act 1974.
- With HP, the lender owns the vehicle until all payments are made. With PCP, you can return, buy outright or refinance at the end.
- Specialist lenders in this space include Close Brothers Motor Finance, MotoNovo Finance and Zuto.
- A 10 percent deposit is often the minimum required by specialist bad credit lenders; 20 percent improves rates significantly.
- The FCA's 2024 review found widespread discretionary commission arrangements (DCAs) in motor finance were potentially harmful to consumers.
- Voluntary termination rights under section 99 of the Consumer Credit Act allow you to return a financed vehicle after paying 50 percent of the total amount payable.
Hire purchase for bad credit applicants
Hire purchase is the most straightforward car finance product for applicants with poor credit. The lender purchases the vehicle and you repay the cost plus interest in fixed monthly instalments over an agreed term, typically 24 to 60 months. The lender remains the legal owner of the vehicle until the final payment is made, at which point ownership transfers to you automatically.
Because the lender retains the asset as security, HP is generally easier to obtain with impaired credit than an unsecured personal loan for the same amount. The lender can repossess the vehicle if payments are missed, which reduces their risk and makes them more willing to lend to higher-risk applicants.
For applicants with poor credit, HP APRs from specialist lenders typically range from 15 to 40 percent, compared to 5 to 12 percent for applicants with good credit from mainstream dealers. The higher the deposit, the lower the amount financed and typically the lower the rate offered, since the lender's exposure is reduced.
PCP for bad credit: more complex, less accessible
Personal contract purchase is more complex than HP. Instead of repaying the full vehicle value, you pay an initial deposit, fixed monthly instalments covering depreciation and interest, and then face a choice at the end of the agreement: pay a balloon payment (the guaranteed minimum future value, GMFV) to own the vehicle, return it with nothing further to pay (provided mileage limits are not exceeded), or use any equity toward a new PCP deal.
PCP is harder to obtain with bad credit because the lender must set a GMFV, which is a prediction of what the vehicle will be worth at the end of the term. This adds complexity and risk for the lender, which is typically reflected in higher rates or outright declines for the most impaired applicants.
Some specialist lenders do offer PCP to bad credit applicants, typically on newer vehicles with more predictable residual values. However, for many applicants with significant credit impairment, HP or a personal loan will be the more accessible route.
The FCA motor finance commission review and what it means
In January 2024, the FCA published findings from its review into discretionary commission arrangements (DCAs) in motor finance. DCAs allowed dealers and brokers to set customer interest rates within a range, with higher rates generating higher commission for the dealer. The FCA found this created a systematic incentive to charge customers more than necessary.
The FCA banned DCAs in January 2021, but the review examined historical lending before that date. Following significant Court of Appeal rulings in 2024, the FCA is consulting on potential redress for customers who were affected by hidden commissions. If you financed a car between 2007 and 2021, you may be eligible to make a complaint to your lender or escalate to the Financial Ombudsman Service. The FCA's consumer guidance is at fca.org.uk/consumers/car-finance.
This review has no direct impact on current bad credit car finance products, which must now comply with the Consumer Duty (July 2023) and the FCA's existing rules on fair pricing. However, it is relevant context for anyone reviewing a historic car finance agreement.
What specialist bad credit car finance lenders look at
Unlike mainstream lenders who primarily rely on credit bureau scores, specialist bad credit car finance lenders place significant weight on current affordability. A stable employment history, even if relatively recent, can outweigh an older default. Lenders typically assess current income relative to current outgoings, the type and age of any adverse credit entries, whether CCJs are satisfied or unsatisfied, time since the most recent adverse event, and the deposit amount offered.
Many specialist lenders work through broker networks, meaning a single application may be assessed by multiple lenders simultaneously. Brokers including Zuto, CarFinance 247 and Creditplus use soft searches initially to identify the most likely lenders before conducting a formal hard search application. This reduces the footprint on your credit file from a multiple-lender search process.
HP vs personal loan for a used car
An alternative to dealer or broker car finance is an unsecured personal loan from a specialist bad credit lender, used to purchase a car outright. The advantage of a personal loan is that you own the vehicle immediately and can buy from any seller, including private sellers. The disadvantage is that unsecured personal loans for bad credit typically carry higher APRs than HP for the same loan amount, because the lender has no asset security.
For amounts under 5,000 pounds, a credit union personal loan at a maximum of 42.6 percent APR may be more competitive than HP from a specialist dealer, if you are a credit union member. For amounts above 5,000 pounds, HP from a specialist lender is typically the more cost-effective route.
Voluntary termination rights
A significant protection for HP and PCP customers is the voluntary termination right under section 99 of the Consumer Credit Act 1974. Once you have paid 50 percent of the total amount payable under the agreement (not 50 percent of the vehicle price), you can return the vehicle to the lender with nothing further owed, provided the vehicle is in reasonable condition. This right cannot be contracted out of. It is particularly valuable for bad credit car finance customers who find their circumstances change during the agreement term.
Frequently asked questions
What credit score do I need for car finance?
There is no single threshold. Each lender uses its own internal scorecard alongside bureau data. Specialist bad credit lenders focus heavily on current affordability rather than historic score. A score below 600 on Experian's scale may exclude you from most mainstream dealers but not from specialist lenders.
Can I get car finance with a CCJ?
Yes, specialist lenders will consider applicants with CCJs, particularly if the CCJ is satisfied, more than two years old, or for a small amount. An unsatisfied recent CCJ significantly reduces options but does not eliminate them entirely. A larger deposit will help offset the lender's perceived risk.
Is HP or PCP better for bad credit?
For most bad credit applicants, HP is more accessible. PCP requires the lender to set a GMFV, adding complexity and risk they may be unwilling to take on for the most impaired profiles. HP is simpler and more lenders will offer it to a wider range of credit backgrounds.
Can I be rejected for car finance even with a specialist lender?
Yes. Specialist lenders still conduct affordability assessments and must decline applications where repayments would not be sustainable. If you are declined, request the specific reason in writing and take steps to address it before reapplying. Multiple applications in quick succession will damage your credit score further.
