When you apply for car finance to buy your next vehicle, the lender will conduct credit checks to see if you are eligible for the loan. If you have a good credit score, you will usually have more options and better interest rates to choose from. However, having a low credit score could mean that you are rejected for finance from some lenders, and it can reduce your chance of getting the best deals.
Bad credit doesn’t automatically mean that you will be unable to get a car on finance. Here are some simple things that you can do to improve your chances of getting the car that you want while you build your credit score back up.
Improving Your Credit Score
Taking a few steps to boost your credit score before you apply for car finance can make a huge difference to your eligibility. Make sure that you check your credit score, which you can now do free of charge using a variety of companies, apps and services. In fact, some services will even pay you cashback through apps like Quidco or TopCashBack when you sign up to check your credit score. Make sure that there are no mistakes, and the report is up to date. Looking over your credit report can also help you determine where your biggest problem areas are, and what needs to be worked on first. Registering to vote can also help to improve your credit score if you have not already done this; being on the electoral roll is a simple step that can boost your credit rating. This is particularly important if you’ve just moved home or have separated from a partner in which case your credit file may need to be split from theirs.
Pay Down Debts
Your lender will not only look at any debts you have repaid in the past but also how you are handling your current debt and how much debt you have. If you are repaying credit right now, lenders might determine that you are too much of a risk as you may not be able to handle repaying another line of credit, especially if you have had missed payments and other issues in the past. Keeping up with repayments now, paying more than the minimum, and paying off any smaller debts that you have will let lenders know that you are trustworthy with credit and in a position to manage it well. And, it will improve your credit score over time.
Look for Bad Credit Finance
Bad credit Car Finance deals tend to be designed with people who do not have the best credit rating in mind. Applying for finance with a company that offers finance specifically for people with a poor credit rating can increase your chance of getting accepted, however, you might need to deal with the fact that you will probably need to pay a higher interest rate. Check out ChooseMyCar to find the best car finance deals for bad credit. All you need to do is enter how much you want to borrow and how long you want to borrow it to get a quick quote of an average monthly payment.
Put Down a Bigger Deposit
If possible, waiting until you have a larger deposit to put towards getting your new car can help you reduce your monthly payments and increase your chance of being accepted for finance with bad credit. The size of the loan that you are applying for is always going to be considered when you apply for car finance, and if you have a poor credit rating, larger loans are more likely to be rejected. The more you can put down upfront, the less you will need to borrow, improving your chance of acceptance.
Consider a Guarantor Loan
If you are struggling to secure competitive car finance due to your poor credit score, you may be able to improve your chance of being accepted by asking somebody who trusts you to act as your guarantor. However, if you cannot make the payment, the guarantor will be legally responsible for the debt, so you need to make sure that you are going to be able to repay it. Guarantor loans tend to carry less risk for lenders, so they are more likely to offer loans to people with bad credit and at a fairer interest rate compared to when you apply on your own. Most guarantor loans and car finance options will require the guarantor to be somebody with a good credit score and be in a good financial position to be able to repay the credit if necessary.
Consider a Loan Secured Against the Car
If you keep being rejected for car finance on the basis of your credit score, you might want to consider other types of loans. Hire purchase agreements might be a better option for somebody with poor credit, for example, since this loan is secured against the car and the company can take it back if you do not keep up with your payments, making it less risky for lenders.
If you have a poor credit rating, this doesn’t automatically mean you’re going to be rejected for car finance. With the right strategies, you can secure a good deal on your next car.