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Can I finance a commercial vehicle with bad credit?

4 min read

11 July 2019

If you have poor credit, qualifying for any kind of loan can be tricky, particularly when it comes to conventional high-street loans, which are issued predominantly on the basis of an applicant’s credit score.

For any business that’s dependent on one or more vehicles, commercial vehicle funding is often the only realistic option. Whether you’re setting up from scratch or in need of an urgent vehicle replacement, delays can result in costly downtime.

But where can you turn if your credit score simply isn’t up to scratch? If your application has already been rejected elsewhere, what are your chances of qualifying for a commercial vehicle loan?

Beyond the high street

Contrary to popular belief, qualifying for commercial car finance with bad credit can be surprisingly easy. It’s simply a case of knowing where to look, which means setting your sights beyond the high street. 

Most mainstream lenders limit their vehicle finance services to unsecured personal loans. If you don’t have a decent credit score, you’re immediately counted out of the running. By contrast, commercial vehicle finance specialists offer a more dynamic range of options for buying or leasing business vehicles.

Even with a poor credit history, there’s still every chance of qualifying for affordable vehicle finance. 

Alternative options to traditional high-street loans include the following:

Hire purchase

Hire purchase is the number-one choice for vehicle acquisition among private and business buyers alike. A deposit is payable at the beginning of the term (usually around 10%), after which an affordable monthly payment is made over a period of two to four years. The customer is transferred ownership of the vehicle at the end of the term.

The main benefits of hire purchase for business owners are flexible and affordable monthly repayments, the guarantee of vehicle ownership at the end of the term and the elimination of credit checks from most application processes. 

Personal contract purchase 

The personal contract purchase agreement is a popular alternative to the traditional hire purchase contract. Most of the transaction works in the same way, though the end of the repayment term presents the borrower with three options:

  1.  Pay a final ‘balloon payment’ (established upon signing the contract) to take legal ownership of the vehicle
  2.  Continue paying the same monthly repayments and upgrade to a newer or different vehicle
  3.  Hand the keys back to the service provider and walk away with nothing else to pay

The biggest benefit of a PCP agreement is monthly repayments even lower than those of a higher purchase contract. Some also appreciate the flexibility of being able to choose what to do with the vehicle at the end of the agreement. And again, it’s rare for poor credit to stand in the way of a successful PCP application. 

Leasing 

The third most popular option amongst UK businesses is to lease the car (or cars) they require. Initial deposits are payable at the beginning of the term, followed by a series of affordable monthly repayments. The difference with leasing being that there is no option to become the legal owner of the vehicle at the end of the term.

Nevertheless, leasing a vehicle can result in monthly repayments up to 60% lower than those of a hire purchase agreement. Unbeatable deals may be available for businesses looking to lease multiple vehicles, with no specific restrictions placed on poor-credit applicants. 

Independent broker support

Once again, the key to securing affordable vehicle finance with poor credit lies in knowing where to look. Conventional banks may decline poor credit applicants outright, but there are alternative options to explore.  

Simply contact an independent broker or use a car finance calculator to determine how much you can afford and ensure you target the most appropriate lenders.