How to offer finance to customers with bad credit

A measured route to inclusive finance in 2025

Offering finance to customers with bad credit is no longer a niche tactic. In a higher-rate environment, many otherwise creditworthy people have imperfect histories. The opportunity is clear: if you can assess affordability accurately, present options transparently, and partner with regulated lenders, you can convert more sales without exposing your brand to unacceptable risk.

UK lenders increasingly rely on data to personalise offers, setting the right product in front of the right customer at the right time. Fresh, accurate data and alternative indicators such as rent and utility payments can reveal genuine affordability where a traditional score might not. This is particularly relevant for sectors like retail, automotive and small business finance, where access to a vehicle or working capital unlocks income.

Speed matters, but so does stewardship. Some providers in the UK market prioritise business performance and cash flow over pure credit scores, enabling approvals within hours for SMEs that need to seize time-sensitive opportunities. For consumers, FCA-regulated lenders that serve bad credit segments typically price for risk, yet remove friction by allowing fee-free early repayment and clear terms that support rehabilitation, such as debt consolidation. As a UK-based retail finance broker, Kandoo’s role is to translate these options into a compliant, customer-first journey that protects borrowers and your brand.

The principle is straightforward: inclusion without complacency. Robust affordability checks, clear disclosures, and outcomes-based thinking reduce complaints and returns while improving conversion. Done well, this approach widens access to essential goods and services, supports customers’ financial health, and underpins sustainable growth.

Understanding APR is not just about percentages - it is about what a customer will pay and whether it remains affordable if life changes. Clarity builds trust, and trust builds sales.

Who benefits from this approach

Retailers and service providers that sell high-ticket items or subscription-like services gain most. Think car dealers, home improvement firms, mobility providers, independent retailers offering point-of-sale credit, and SMEs selling equipment to other businesses. These businesses see abandoned baskets when finance is declined or feels opaque. By offering regulated, bad-credit-friendly options with straight pricing and clear eligibility, you keep customers in the journey.

Consumers and business owners with thin files, historic late payments, or recovering credit also benefit. When assessed on present affordability and verified income rather than legacy score alone, more people qualify. The result is better access to essential assets and services, with structured repayments that are realistic rather than aspirational.

Know the language

• Representative APR - The advertised annual rate that at least 51% of accepted applicants receive. Useful comparator, not a guarantee.

• Total amount payable - Purchase price plus all interest and fees across the term. Customers should focus on this figure.

• Soft search - Eligibility check that does not impact a customer’s credit score. Ideal for pre-qualification.

• Alternative credit data - Non-traditional signals like rent, utilities and subscription payments used to assess affordability.

• HP vs PCP - Hire Purchase transfers ownership at term end; PCP offers lower monthly payments with a final balloon or return option.

• Secured vs unsecured - Secured loans use collateral and may offer lower rates; unsecured rely on creditworthiness and affordability alone.

• Early settlement - Paying off a loan early. Many UK products allow this without penalties, reducing total interest.

Practical ways to say yes more often

1. Partner with specialist lenders for bad credit segments - Consider UK providers that prioritise current affordability and business performance. For SMEs, partners offering £5,000-£750,000 with fast decisions can keep deals alive when timing is critical.

2. Offer regulated personal loans with transparent terms - UK FCA-regulated lenders serving bad credit can enable consolidation or purchases from £1,000-£20,000 with 1-5 year terms and no early repayment penalties.

3. Add specialist car finance options - Provide HP and PCP choices that work for impaired credit, including no-deposit where appropriate and subject to affordability and, if needed, a guarantor.

4. Use soft-search eligibility tools - Let customers check likely approval without affecting their score. This reduces friction and improves trust.

5. Apply data-driven pre-qualification - Use accurate, consented data to tailor offers and limits, improving conversion while managing risk.

6. Consider leasing or subscription alternatives - For customers who fail traditional lending, short-term hire or subscriptions may bridge needs while credit improves.

What it costs and what it delivers

Who typically qualifies and why

Eligibility depends on product and sector, but the direction of travel is consistent. For consumers, lenders evaluate verified income, expenditure, and stability alongside credit history. A customer with missed payments may still qualify if present affordability is strong and recent conduct is stable. FCA rules require fair treatment and robust checks, so clear documentation and consent-driven data are non-negotiable. For vehicle finance, applicants with bad credit may need higher deposits or a guarantor, though some no-deposit options exist if affordability is sound. For personal loans, regulated providers often accept applicants at higher APRs with terms designed to keep repayments manageable and allow fee-free early repayment. For SMEs, lenders focusing on business performance assess turnover trends, cash flow, and trading history rather than score alone, which can enable rapid approvals where working capital is the bottleneck, not viability.

From enquiry to funded - the sequence

1. Run a soft-search eligibility check

2. Verify income and key expenses

3. Present tailored product options and APRs

4. Confirm consent and complete application

5. Lender performs affordability and ID checks

6. Receive decision and conditions within hours

7. Sign documents digitally and fund

8. Provide aftercare and early settlement guidance

Upsides and trade-offs

Stay sharp before you commit

Bad credit finance should be a bridge, not a crutch. Treat affordability tests as protective, not obstructive, and model payments against stress scenarios like interest rate rises or income volatility. For vehicle or retail finance, be precise about total cost and term length, not just the monthly number. If you are brokering, ensure partners are FCA-regulated, publish representative APRs, and allow customers to settle early without penalties. In business lending, align the loan term with the cash-generating life of the asset or project, not longer. Transparent communication and clear next steps reduce complaints and cancellations.

If the fit is not perfect

1. Use credit-builder or specialist credit cards to rebuild history over 6-12 months.

2. Explore leasing, subscriptions, or short-term hire while improving credit.

3. Consider secured options if appropriate and affordable, mindful of collateral risk.

4. Seek non-debt support like budgeting advice or government-backed schemes.

Questions people ask

Q: Can customers with bad credit really be approved? A: Yes, if affordability is verified. Specialist lenders and brokers often say yes where mainstream declines, particularly when using alternative data.

Q: Will checking eligibility damage a customer’s score? A: Not with a soft search. Only full hard checks for accepted applications typically appear on a file.

Q: Are the interest rates excessive? A: Rates are higher to price risk, but FCA oversight requires transparency and affordability. Emphasise total amount payable and early settlement options.

Q: How fast can business funding arrive? A: Some UK providers assess on performance and can turn around approvals in hours, enabling SMEs to act quickly on opportunities.

Q: What about car finance with bad credit? A: HP and PCP can be available with higher APRs or a guarantor. No-deposit options exist subject to affordability checks.

Q: Is leasing viable with poor credit? A: Often, if affordability is strong. Otherwise, consider short-term hire or subscriptions while improving credit.

What to do next

Map your customer journey, identify decline points, and integrate soft-search eligibility. Partner with regulated lenders that support bad credit segments, and deploy data-driven pre-qualification to match products to real affordability. Provide clear disclosures, show total cost, and signpost early settlement. Kandoo can help design and broker a compliant, conversion-friendly flow that serves more customers responsibly.

Important information

This guide is for information only and does not constitute financial advice. Eligibility, rates and terms depend on individual circumstances and lender assessments. Always ensure offers comply with FCA rules and consider independent advice where appropriate.