Finance solutions with bad credit
The process of buying a new car can involve a lot of research and reading up on car finance. If you’ve started the process, you’re probably familiar with the fact that before lenders accept to give you a loan they will check your credit score to asses if you’re likely to honour the payments on time.
That’s when a lot of people believe they won’t be granted the loan based on their low credit score. However, what if there was a way of being approved for car finance even with bad credit or no credit history at all?
There is and here's how.
Content
- Car finance with bad credit
- Can I get a car finance with bad credit?
- How can I get car finance with bad credit?
- Where to get car finance with bad credit?
Car Finance with bad credit
Having bad credit or no credit history can mean that some lenders won’t lend the money you need to purchase a car. That's because they view you as a high risk debtor (someone who won’t be able to honour the payments).
If you're in this situation it’s not the end of the world. There are several ways you can improve your credit score or get approved, even with poor credit.
Can I get car finance with bad credit?
Yes, you can. It’s going to be harder to be approved, it may cost you more than if you had a good credit score, and you need to find the right lender. As explained above, a low credit score could be a sign that you could be a debtor who misses payments. In order to minimise the risk, lenders tend to offer car finance at higher interest to people who have low scores.
You’ll have a better chance of being approved if you’re reasonable and stay within your means. Requesting a loan to buy a car that is out of budget is less likely to be approved.
If you decide to go ahead and apply for car finance regardless of the high interest rate, it could end up helping increase your credit score over time. Be mindful and only commit to an agreement that you’ll be able to make the payments on time and in full.
How can I get car finance with bad credit?
Before the loan is approved your credit score will be checked. A credit score is an overview of your financial history, which analyses outstanding debts, if you pay your bills on time, if you’ve ever declared bankruptcy, and if you already have another loan. All of this allows the lender to assess the risk of granting you car finance.
If you rank on the lower side of the credit score there are a few simple steps you can take to ensure your car finance will be approved.
Increase Credit Score
Small details, such as misspelled names and addresses, could be putting your credit score down. This is an easy fix that can help wonders. There are plenty of credit reference agencies in the UK that can help you to update your information with the correct spelling and current address
Registering to vote could also help improve your credit score. Councils send voter data to the three credit reference agencies, mentioned above, every month. That means your score gets updated by the agencies every eight weeks.
Put down a larger deposit
The average deposit for a car purchased on finance is 10 percent of the vehicle’s value. Putting down a larger deposit could increase your chances of being approved for a loan because it lowers the lender’s risk.
Have a Guarantor
A guarantor is a person who’s going to sign documents committing to paying off your loan in case you can’t meet the payments. This can be an option if you have someone who’s willing to help you buy your vehicle.
Pay off outstanding debt
This is the most obvious way of increasing your credit score, but it is not always straightforward. Clearing debt won’t give your credit score a clean slate but it will most certainly improve it considerably.
Staying on top of your bills and making sure you never miss a payment will show lenders that you’ll be committed to making the monthly payments and that you’re less likely to not honour the instalments.
Getting a credit card
Credit cards are used by a lot of people to build up their credit score. You can use it on your regular shopping trip to the supermarket or petrol station. It’s important to make sure you will be able to pay it off immediately when it’s due, otherwise it can hurt the credit score rather than helping improve it.
It requires financial awareness and a lot of planning to make sure you won’t fail to make a payment on time but it’s a good way of showing lenders you are capable of borrowing money and stay on top of the payments.
Where to get car finance with bad credit?
It may be easier to find lenders willing to grant you car finance than you think. Below are the two best options to start looking:
Car Dealerships
Most car dealerships offer some kind of finance solution to people who can’t afford to purchase a vehicle outright. The most commons ones are Hire Purchase (HP), Personal Purchase Contract (PCP) and leasing.
Car dealerships secure the loan against the vehicle, this means that you offer a lower risk to them because they can repossess the vehicle in case payments aren’t met.
Personal loan
Personal loans can be used to pay for almost anything, including a car. Bank loans usually offer a better interest rate than car dealerships. That means you could borrow the amount you need to buy the car outright, however this loan holds more of a risk.
Unlike the finance solutions offered by the dealerships, personal loans will be held against an asset you already own, such as your house. That’s why you should consider which is the best option for you and make sure the monthly payments will fit within your budget, otherwise you could get in financial trouble.
Have you made your mind up?
If you have a low credit score not all is lost. You can still get car finance, and making sure that your payments are made on time and in full could help improve your credit score over time.
If you have already sat down and worked out your budget have a look at Evans Halshaw new and used car offers. This allows you to filter cars by price which will facilitate your search and help you stay within your means.
