Credit Building

What credit score do you need for PCP & HP finance?

Jan 10, 2024

If you're thinking about financing a new car, you're probably wondering what credit score  you need for PCP finance (Personal Contract Purchase) or HP (Hire Purchase). Your credit score is important if you want to lease a car and can impact the deal you get. Loqbox delves into the world of car leases and credit scores to help you understand your options.

What types of car finance options are there?

In the UK, there are four main types of car financing options that you can choose from. Let’s take a look at each one of them in a bit more detail:

1. Personal Contract Purchase (PCP)

With this option, you pay a deposit and make relatively low monthly payments, including interest, which cover the depreciation in a vehicle’s value between getting the keys and the end of your agreement. 

When the agreement ends, you have the option to make a final payment — usually called a “balloon payment” — to cover the remaining cost of the car or just give it back with nothing left to pay.

2. Hire Purchase (HP)

Hire Purchase works in a similar way to PCP, in so much as you’re required to pay a deposit and then make monthly payments which include interest. 

However, with HP financing, the payments you make will be higher than PCP and ultimately go towards the full value of the car. That means you will own your car at the end of your agreement.

3. Personal Contract Hire (PCH)

PCH gives you the opportunity to hire a car by paying a deposit and making monthly payments, much like the other options. But with a Personal Contract Hire, you don’t get the option to become the legal owner of the car at the end of your agreement. It’s just a hire option.

4. Personal Loan

With a personal loan you borrow the money for the car, as a lump sum, from a lender. In setting up the loan you will be offered terms for repayment which will include the duration of the loan and the interest rate. 

With this option, you can buy the car outright and become its legal owner straight away. But you will have a commitment to repay the loan to whichever lender gave you the money. 

Do you need a credit score to lease a car?

Lenders, including those that offer car finance, will use your credit report to assess the risk of lending to you. Included in your credit report is information on how you’ve managed credit in the past (aka. your credit history) and separately, they’ll assess whether you can meet the loan repayments given your other outgoings - this is called your affordability. But how do we know if we’ll be approved for finance or not?

 

That’s where your credit score comes in. Your credit score is important if you want to finance a car, because it’s a tool for you to use to understand how your credit report and credit history are viewed by a lender. The higher your credit score, the more likely your application will look favourable and be approved with better interest rates. 

In the UK, credit scores are calculated by the three main credit reference agencies — Experian, Equifax, and TransUnion. 

If you don’t know your credit scores you can check with each of the main three credit reference agencies, for free and without impacting it, using these recommended services:

ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*For transparency, we wanted to let you know that ClearScore pay us a small commission if you sign up using this link.

Whether you choose HP, PCP, PCH, or a personal loan, financing a car purchase will be considered credit, meaning that the lender will need to check your credit report. This will normally mean that they do a hard credit check on your credit report. You can find out more about hard vs soft credit checks here.

Your credit report not only affects whether you’re likely to be accepted for car finance, it can also dictate what offer you get, the interest rates that you will pay, and what options are available to you.

What credit score do you need for PCP or HP finance?

Whether you choose PCP, HP, PCH, or a personal loan, there’s no average credit score for vehicle finance. The minimum credit score to lease a car in the UK can vary from lender to lender. Generally, a ‘good’ to ‘excellent’ credit score will increase your chances and may help you to secure more favourable terms. 

If you’ve checked your credit using the links above, and you don’t have a “good” or “excellent” score, you might be asking yourself, “Can I get HP with a fair credit score in the UK?” Yes, don’t worry, some lenders may consider applicants with fair credit scores for HP and PCP financing. You just might need to shop around a bit more.

To increase your chances of approval and get better terms, consider getting started with Loqbox Grow to boost your credit score. There are no credit checks required and it can help to improve your credit score with all three credit reference agencies. 

Improvements to your credit score are not guaranteed.

Does a PCP or HP affect your credit score?

Yes, entering into a PCP or HP agreement can affect your credit score. When you apply for car finance, the lender will perform a hard credit check. This check can have a temporary negative impact on your credit score. However, if you make your payments in full, and on time, your PCP can actually have a positive impact on your credit score.

Lenders love to see responsible and sensible activity on your credit report. So, using credit responsibly can do wonders for your credit score. If you are accepted for car finance, be sure that you are in a good position to tackle the longer term financial commitment.

Your car lease and credit score

In the world of car finance, whether you’re hoping to lease a car through PCP or HP financing, credit scores (remember - these are a reflection of your credit reports) can influence your chances of being offered the best rates. But, while higher credit scores can open doors to better terms and lower interest rates, you can still explore financing options with ‘fair’, or sometimes even ‘poor’, credit. 

Before making any decisions, you should shop around, compare offers from different lenders, and carefully review the terms and conditions of the financing agreement. This will help you make a choice that fits with your financial goals and credit situation. Don’t take on anything you can’t afford as that may lead to bigger problems in the future.

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