What credit score do you need to buy a car?

Roman Danaev

7 March 2021

There is no set credit score that guarantees you’ll be approved for car finance. A higher credit score signals that a borrower has less risk and is more likely to pay back lenders. If your credit score is low, then there may be some difficulties, but this does not mean you will be refused car finance. To learn whether you can get a car loan, you can use a car finance eligibility checker.

How does a credit score work?

Your credit score is a major factor in whether you'll be approved for a car loan. It’s a three-digit number that reflects your borrowing history and financial habits.

There are three credit reference agencies (CRA) in the UK: Experian, Equifax, and TransUnion — and each one calculates your score differently. Each lender has its own definition of a good score, too. That’s why there’s no universal number that can guarantee you’ll find car finance. Below, you can find a list of the CRAs’ scores and their rankings.

Excellent961 - 999811 - 1,000628 - 710
Very good-671 - 810-
Good881 - 960531 - 670604 - 627
Fair721 - 880439 - 530566 - 603
Poor561 - 7200 - 438551 - 565
Very poor0 - 560-0 - 550

The highest scores mean the lowest rates and the best credit terms. People with poor credit can get a car loan too. However, the rates increase, and the conditions will be heavier for lower credit scores.

What are the types of car finance?

The main types of car finance in the UK are:

1. Hire purchase

With hire purchase (HP), customers put down a deposit and make monthly payments until the loan amount (with interest) is repaid. After this, the customer becomes the rightful owner.

2. Personal contract purchase

The personal contract purchase (PCP) is similar to HP, but the monthly payments are lower. During the term of the agreement, the customer pays only the difference between the initial price of the car and its price when the contract ends. The ending price takes the car’s wear and tear into account. The customer can then give the vehicle back to the seller without any or pay the “balloon payment” to become the lawful owner.

3. Personal contract hire

When a purchase is made using personal contract hire (PCH), the customer pays an initial deposit and monthly payments. But unlike PCP, it’s impossible to become the owner of the vehicle, and it must be returned to the seller when the contract ends.

4. Personal loan

You can get a personal loan anywhere you want and use it to pay the full cost of the car. In this case, you can purchase a car from any seller and make monthly repayments to your lender.

How is car finance affected by your credit score?

A borrower’s credit score reflects their past interactions with their money and debts. Based on it, lenders make decisions about the reliability of the borrower and the probability of the loan's repayment.

The credit rating affects, firstly, the possibility of taking out a car loan. An excellent or very good credit score to buy a car entitles you to a low-interest rate, a minimum down payment, and lower monthly payments. If your credit score for car finance is low, you will be offered higher interest rates and a higher deposit requirement. Borrowers with different credit ratings may end up spending significantly different amounts for the same loan.

On the other hand, car finance affects your credit score, too. When you go to a dealership to buy a car and ask for a loan, it starts a hard request with the credit reference agency. Such a request can reduce your credit score by a few points (5-10) for about a year.

If a consumer is looking for better conditions and applies for a car loan with different dealers within a short time (up to 45 days, depending on the credit bureau), then all these requests are pooled and counted as one request. For those who have a high credit score to finance a car, this decline does not affect the conditions for car loans. However, if the rating value is on the border of Good/Excellent or Poor/Fair, this will significantly change the lending terms.

Also, when you just have received car finance, your credit score slightly drops. It will recover after you make your next few monthly payments on time. If you continue to repay your loan without missed or late payments, your credit score will rise.

Is there a minimum credit score for buying a car in the uk?

Actually, there is no minimum credit score needed for car finance. Anyone can take out a loan to buy a car. But the conditions for different categories of borrowers are very different.

The three main credit bureaus in the UK use different scales for estimating borrowers’ likelihood of repayment, so there is no concept of a minimum credit rating for a car loan to be approved.

There are many credit companies in the UK, and each lender uses its own eligibility parameters and may assign different weights to particular data. So, it’s possible to get car finance even if your credit score is low.

However, if your score is low for all three UK credit agencies, it will be difficult and very expensive to get a car loan.

How do car dealerships check credit?

A car dealership can assess credit scores with any scoring system of its choice. Several different models may also be used.

he leading scoring models are FICO and VantageScore. Their values of scores are different from Experian, Equifax, and TransUnion. Each scoring model operates with its own algorithm. Unlike credit agencies' ratings, FICO and VantageScore currently have the same range of rating values from 300 to 850.

FICO is the most famous and popular scoring model. The main version of FICO is applied to many types of lending, and there is a special version for auto lenders. The input data of this version is the same as the main one, but the weighting system has special settings.

The main data that is processed by the models is the same and is taken from the borrower’s credit history.

Factors in car loan approval

A credit score is the main and primary indicator of the borrower's estimation. The following factors are also of great importance and are studied by lenders.

1. Your credit history

Your credit history contains information about how you manage borrowed funds. It comprises all loans and credit products you've ever had, as well as your payment history.

2. Income and expenses

It's a very simple and important indicator. Lenders compare monthly income and expenses to estimate your likelihood of repaying a new loan. The difference must be greater than the estimated monthly payment

3. Debt-to-income ratio

This is the ratio of monthly loan repayments to income (usually calculated in percentages). The smaller it is, the better.

4. Credit utilisation ratio

It is the percentage of your credit limit that you use. This metric can be used to evaluate credit card usage. It reflects your need for credit funds. It’s good for lenders if the credit utilisation ratio is about 25% or less.

5. Your residential stability

This characterises the relative stability of your life. Lenders want to be sure of the full and stable repayment of loans. And they will see you as a riskier borrower if you move frequently.

How to improve your chances of getting car finance

A car is an expensive purchase and a durable item. So, you need to take it very seriously. If a loan is required for the purchase, then this demands additional attention.

You must choose the right car with the right price and understand your abilities to purchase it. If you do not know your credit score to buy a car, try to estimate what awaits you in the"worst"case of car finance with a bad credit score.

Choose the car carefully

When choosing a car to purchase on credit, it is necessary to measure your needs, desires, and repayment abilities. Lenders consider certain cars to be more or less risky for car finance. Therefore, check the loan’s availability for the selected car.

Check and improve your credit score

You can check your credit scores to learn your chances for car finance. It’s free and will help you prepare for your loan request.

If your credit score is just below the level of a higher category, you can improve it to get an opportunity for a car loan with better terms. But do not count on quick improvement; it will take six months, at least.

Compare your desires and abilities

You need to choose a suitable car at a price that will allow you to safely pay monthly loan payments for several years. So, check your income/expense ratio.

Is a good credit score a must to buy a car?

A car purchase with a loan is a process that must be taken seriously. The credit rating is essential in this process for both the borrower and the lender.

According to FICO, more than 60% of car loans are issued to borrowers with a rating above 661 (Good and Excellent).

The higher the score, the more willingly the lender will provide financing, and the borrower will receive favourable terms. In the case of a high rating, everyone wins.

Car finance calculator

Must be between £3,000 to £50,000
Your monthly payment
Total charge of credit£0
Total amount payable£0
Apply now for your personalised, no-obligation quote