You may have already heard it can be harder to get a car on finance with a low or poor credit score. This has long been the case for many applicants, but more finance lenders are wanting to make loans more accessible for a whole range of applicants. Whilst finance can never be guaranteed to any individual and some people may just not be fit for credit, there can be ways in which you could improve your chance of approval. The guide below explores different ways to buy a car and how improving your credit could help you to get a better finance deal.
What is poor credit?
Poor credit refers to having a bad or low credit score. Your credit score is an important financial tool which affects your ability to borrow money. Your credit score may be checked by a lender when you apply for a mortgage, car finance, loan, credit card or mobile phone contract. Lenders do this to see how you’ve handled any previous finance and make assumptions about how you’ll handle their credit too. Bad credit habits can include things like making late or missed payments, no evidence of borrowing before, using too much of a credit limit, having a CCJ or default on your credit report or being declared bankrupt. Whatever your reason for a low credit score, it can affect your ability to get approved for loans, affect credit limits, and also may get you a higher interest rate when borrowing.
Why buying a car with cash is best?
If you’re in the market for a new car, you may be wondering what the best way is to buy one. In general, the most cost-effective way to get a car is with cash. You get to be the legal owner of the car, you have more freedom from where you can buy your car from, you can sell it when you like and there’s no interest or extras to pay. Your credit score doesn’t matter when you buy with cash as you aren’t borrowing any money. The only drawback of buying with cash, and it is a biggie, is having to fork out one lump sum. Cars can cost a lot to buy outright, and it can be hard for people to save up this kind of cash to use on a car. Many people turn to car finance as a way to get a newer, better car and spread the cost into month payments they can afford.
How do credit scores affect car finance deals?
If you’re looking to get a car on finance, a lender may want to take a look at your credit score first. Knowing how you’ve handled your credit in the past helps lenders to assess how much of a risk you are. A good credit score usually indicates you’re good at managing your money, don’t rely too heavily on credit and can be trusted to make payments on time. These applicants are more favourable to lenders and could be offered lower interest rates as a reward. People who apply for poor credit car finance may be declined if the lender thinks they are likely to default on their loan or they could receive approval but with a higher APR rate to secure the deal.
Is it possible to get a car loan with bad credit?
Being a bad credit buyer doesn’t have to mean the end of the road for car finance. It can be possible to secure a finance deal even with a poor credit score, but it may not be the most cost-effective. There are specialist lenders who can help bad credit applicants and instead of focusing on your credit history, they instead assess whether your affordability would make it possible for you to get a car. Some lenders may charger higher interest and fees to helps secure the loan though and it may not work out as the cheapest way to get a car. In most cases, it is recommended to better your credit and put yourself in a better position first before trying to secure a loan.
How to improve your ability to get a car finance deal:
Your credit score isn’t the only factor lenders look at before they consider offering you a loan, but it can be very influential. Below are a few tips to consider before applying for finance to help put your best foot forward!
Pay down your debt.
Before you take on anymore credit, you should assess your situation and reduce any debt you currently owe first. This will help your loan become more affordable and also help to improve your credit score in the process.
Make payments on time.
Keep on top of any current bills you need to pay and make sure you make them on time and in full. Setting up direct debits to automatically take the repayment is a great way to make sure you never miss a payment. If you’re struggling to meet any of your payments, speak with the lender to see how they can help.
Consider a larger deposit.
If you’re struggling to get approved for finance, you could consider putting down a larger deposit when financing a car to help secure the deal. A bigger deposit helps to reduce the loan amount and can make your monthly payments smaller. From a lenders point of view it also reduces the risk as they are giving a less amount of money out to the customer.
