Around 1.4 million Brits may be deterred from purchasing a new car through finance this year due to poor credit scores forcing high interest rates.
According to research conducted by credit check company Clearscore, around a third of Brits have poor credit scores and would therefore be offered the highest annual percentage rates (APR) on finance car purchases.
For example, someone with a poor credit rating looking to buy a 2017 Land Rover Discovery, which costs from £43,495, would likely be faced with a five year finance deal commanding 31.6% APR, following a 10% deposit.
After the five year term the buyer would have spent £40,672.57 in interest alone, or 94% of the car's overall value. A high credit score person faced with 5.9% APR would have paid just £7,775.66 in the same period, which represents just 18% of the car's value.
The same scenario on a £100,000 car would leave a poor credit score buyer paying £93,796.73 after five years. A high credit score buyer would pay less than £18k.
“We estimate that 33% of people fit into this lowest band,” a Clearscore spokesman told Autocar. “Given that 80% of cars are bought with car finance of some sort, we estimate that this issue effects around 1.4 million people.”
Conversely, research shows that just 22% of people have an excellent credit score and would therefore be offered the lowest APR.
Justin Basini, Clearscore CEO added: “Car finance deals are more popular than ever and can be a great way to make your dream car affordable. One way to improve the deal you’re offered is to choose the car you want a few months in advance and work hard on improving your credit score before applying for finance – a high score can reduce the cost significantly.”