PCP (personal contract purchase) is a type of car finance with lower monthly payments than HP (hire purchase) finance. With PCP, you don’t have to completely pay off a car’s value, as drivers can pay the vehicle’s balloon amount, predetermined at the start of the agreement, and trade it in at the end of the contract.
Trade-ins may be more advantageous for drivers who prefer to change their cars regularly. PCP finance requires you to put down a deposit, a monthly payment, and the final payment if you want to keep the vehicle.
It’s possible to get PCP with bad credit, but it’s more difficult than with fair or good credit since lenders will view such cases as higher risk, which can result in stricter terms.
Instead of feeling overwhelmed by the prospect of obtaining PCP car finance with bad credit, we’ll break down the process by covering:
- The ins-and-outs of PCP car finance in detail
- How to increase your chances of PCP approval with poor credit
- Alternatives to PCP car finance
We’ll end our guide by highlighting an easy way to begin applying for PCP so you can hit the ground running. Begin learning more about PCP car finance with bad credit below.
What does fair credit mean for car finance?
PCP car finance covers your vehicle’s depreciation over the contract’s length, with the deal’s amount based on the car’s worth at the contract’s end. Financiers calculate this worth by accounting for factors like your predicted annual mileage and the vehicle’s age. Some may finish their contract’s term with a higher value or equity that can go toward a new car. Drivers with PCP finance will have an interest rate rolled into their monthly payments.
The interest rate hinges on factors like an applicant’s deposit amount and credit rating, underscoring the difficulty some with low credit may encounter when seeking finance approval.
A significant upside to PCP car finance is your ability to drive a car for a while to see if you like it enough to buy it outright. However, you’ll pay penalties if you exceed the vehicle’s annual mileage allowance or incur damages beyond expected wear and tear during a trade-in. Drivers wishing to exit an agreement early will also pay a fee covering the car’s remaining balance.
The main similarities between PCP and HP car finance are:
- Not owning the vehicle from the finance agreement’s outset
- Paying a fixed monthly amount
- Making a deposit
- Paying an early settlement penalty
HP car finance primarily differs from PCP in that there’s no annual mileage limit.
How to get approved for PCP finance with bad credit?
Now that we’ve explained PCP car finance and clarified that you could secure it with bad credit, let’s look at how to optimize your chances of gaining approval.
One of the most overlooked tips for getting PCP car finance with poor credit is selecting a vehicle that holds its value well, which will reduce monthly payments since the difference between its purchase price and future value is smaller.
You can also review your credit report to ensure there are no errors and check for areas where you can improve your rating. While different lenders have varying criteria, these organizations often consider credit below 600 as poor.
Still, lenders understand that people go through financial difficulties. You’ll strengthen your case for PCP car finance approval with consistent income from employment, which is weighed against factors like current debts. Applicants with low credit scores may have to pay a larger upfront deposit or higher monthly interest rate.
How a larger deposit can increase the chances of PCP approval
Offering a larger deposit upfront not only decreases the vehicle’s partial value you’ll be responsible for paying off every month, but it also shows a lender that you have enough financial discipline to save for this payment, which can lower your perceived risk as a borrower. A larger deposit may additionally result in lower interest rates.
Additional PCP car finance with bad credit strategies
Some lenders may offer guarantor PCP car finance or joint PCP vehicle finance to help drivers with low credit secure a loan.
A guarantor covers a car’s monthly PCP cost if the borrower repeatedly skips or defaults on loan payments. This safety net makes securing PCP car finance from a lender easier, but the borrower and their guarantor will both suffer hits on their credit ratings if they default on the agreement.
Joint finance differs from a guarantor in that it involves two people applying for car finance and paying the loan’s terms together. While both people will pay simultaneously with joint finance, lenders require one person to register as the vehicle’s primary user, also known as the registered keeper. A registered keeper oversees MOT, car insurance, road tax, and service expenses.
It’s worth noting that HP car finance is typically easier to get with poor credit than PCP vehicle finance. An HP loan is secured against the car’s value, lowering lender risk. In contrast, PCP finances a portion of a vehicle’s total value.
The easy way to apply for PCP car finance
Some PCP car finance lenders specialize in catering to drivers with bad credit. Car Finance Today will quickly connect you with these lenders so you don’t have to feel like you’re searching for a needle in a haystack.
Our platform streamlines your ability to evaluate deals from numerous lenders and find offers with more flexible credit requirements. Car Finance Today users can expect a no-obligation quote in under 60 seconds, flexible terms tailored to their situation, and searches that can help you beat a quote you previously found. We’ll also provide a dedicated account manager to assist you from start to finish.
After learning that you can get PCP car finance with bad credit, you may be curious to know if the same answer applies to receiving vehicle finance without a licence and, if so, how complicated this process is. For more information, check out our blog on whether you need a driver’s licence to get quickly approved for car finance. Young drivers can also read our blog answering if there’s a minimum age for car finance.
