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If you have your driver’s license and are ready to get out onto the roads, buying or leasing a car are just two options available. One of the most popular types of car finance is Personal Contract Purchase or PCP.
In this guide we’ll explore one of the most popular car finance options available in the UK – Personal Contract Purchase. Frequently asked questions about PCP include: what credit score do you need for PCP finance? and is PCP finance a good idea? Wave Motor Group has the answers below.
How can your credit score affect a car finance application?
As your credit score is based on your credit history, it shows lenders how responsible you are with your finances. This will help them to gauge your affordability and decide whether you meet their criteria for car finance.
Not only will your credit score determine whether you’re approved for car finance, it will also influence the finance options and APR rates available to you.
So, how can you build your credit score? If you’ve kept up with your previous credit card and other finance payments, and made all your payments on time, this indicates that you are a safe and responsible option. It makes you a safer bet in the eyes of lenders, and greatly improves your chances of being approved for car finance with lower interest rates. However, having a good credit score doesn’t guarantee that you’ll get approved for finance. Every application depends on the individual’s circumstances and the lender’s criteria.
If you have a bad or poor credit score, your finance options could be reduced. You may still be able to get car finance, however, the APR and terms may vary. In some cases, you could be rejected outright, simply because lenders will view your car finance application as high risk, especially if you have had missed or late payments in the past.
Do I need a minimum credit score to be able to finance a car?
The short answer is no. Although it’s true that the better your credit score is, the greater your chance of being approved for car finance - with favourable terms and interest rates - there’s no minimum credit score required to finance a vehicle.
There are three main credit reference agencies in the UK: Equifax, Experian, and TransUnion. If your credit score is high across all three of these agencies, there’s a great chance you’ll be approved for car finance. However, each lender will have their own criteria when it comes to approving finance - some placing more importance on your credit score than others.
My credit score is 500, can I get car finance?
Yes, you may be able to secure car finance from a lender with a score of 500. It all depends on which credit reference agency you’re using, and which lender you’re applying to. At Wave Motor Group, we work with a panel of lenders who are equipped to review car finance applications from all credit backgrounds. We could help to find you an approval to suit your personal circumstances.
How do we find your credit score?
As mentioned above, Equifax, Experian, and TransUnion keep a credit history of all your past payments and credit.
Wave Motor Group works with a panel of lenders to obtain information on your credit score – this will be an initial soft search – which means there will be no impact to your credit profile. Your credit history and score will factor this information into the decision-making process.
How to improve your credit score
There are several ways in which you can improve your credit score, including the following:
Set and follow a monthly budget
Lenders will factor in your income and expenditures when carrying out affordability checks. The purpose of this is to ensure you can afford the monthly finance repayments.
If you’re seriously considering applying for credit, it’s a good idea to know exactly how much money is coming in, and how much money is going out each month. Through the creation of a budget, you’ll have a far clearer idea of whether you can afford the finance repayments or not. If you realise you don’t have enough money left over to afford the repayments, it’s probably best that you don’t apply for car finance, as missing payments will negatively affect your credit score.
Credit history
As established above, your credit history is the record of your past financial patterns and behaviour. Lenders use this information to predict your future financial behaviour, as well as deciding whether to approve your car finance application and what rates to offer.
If your credit history reflects that you’ve been reliable when it comes to making your previous repayments on time, lenders are far more likely to view you as a safe bet, and should be far more willing to provide you with the finance you need.
If you currently have any financial penalties like an Individual Voluntary Arrangement (IVA), a County Court Judgement (CCJ), or have declared bankruptcy - this can have a negative impact on credit history for up to six years. This could in turn lead to rejections from lenders.
If you have an IVA or a CCJ, make sure you have an affordable repayment agreement in place with your creditors. This will go a long way towards improving your credit standings.
It’s a good idea to familiarise yourself with your full credit report before applying for car finance. This way, you can make sure there’re no mistakes on the report that could negatively affect your application for finance. This will also help you to work out where you can improve your credit score.
Another great idea is to try our fast and easy Apply Now to find out your likelihood of approval for car finance. This won’t affect your credit score.
Your debt-to-income ratio
Similar to your income and expenditures, your debt-to-income ratio compares your monthly income with any debt repayments you may have. This ratio is usually shown as a percentage. This information is used by financiers to work out the likelihood of you being able to manage your monthly repayments. This means that the lower your debt-to-income percentage, the higher the likelihood of you being approved for finance.
Credit utilisation ratio
Your credit utilisation ratio is the amount of available credit you are busy using. For example, if you have one credit card with a limit of £1,000 and you use £800, your credit utilisation is at 80 percent. You should always try to keep the percentage between 20 and 30 percent to keep your credit score at a good level.
Please note that if you have plenty of credit and are hardly using any of it, this too can have a negative impact on your credit score. By keeping your credit utilisation at around 25 percent, you’ll be showing financiers that you do have credit, you make use of it responsibly, but you don’t rely on your credit to keep your head above water.
Your residential stability
When applying for car finance, financiers will factor in your residential stability. This means they’ll look at three to five years of your address history. If you’ve had many different addresses over this period, credit reference agencies may look at you as less stable than someone who has kept the same address over this length of time.
If possible, it may be a good idea to stay settled in one place for an extended period before applying for car finance.
Get a car on PCP with Wave Motor Group today
Wave Motor Group would like to help you secure a car on PCP.
By working with a diverse panel of lenders, we can consider and match people from all credit backgrounds with the right lender for their financial requirements.
Apply Now to find out your likelihood of approval for car finance.
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