How to Get Bad Credit Car Financing

How to Get Bad Credit Car Financing - RateWise
by Accept Car Credit

You might be worried about taking out a loan if your credit history is unsatisfactory. When applying for car finance, the credit checks will decide whether you can secure a car loan or not.

However, not everybody is so lucky to get car finance with bad credit. Then how to get bad credit car finance? Let us discuss some simple things that can enhance your chances of getting bad credit car finance.

Accept Car Credit is a national, family run car finance company set up to assist customers buying a motor vehicle with good, poor or bad credit history.

There are three types of car finance products, namely personal contract purchase (PCP), hire purchase (HP), and personal loans.

Car finance is the best way to space out payments at your convenience and avoid paying the whole amount at once. Like other loans, interest rates will apply, so carefully compare providers to find the best deal for you.

A common misconception

Bad credit ratings are commonly misunderstood as a rejection for any type of finance or loan. It feels like an impossible task to get car finance with bad credit.

The brownie points like incentives and advertised interest rates are like a dream for a person with bad credit, and borrowing costs sharply increase. The bad credit car finance makes your goal suddenly out of reach.

Lenders assume that if you have a bad credit rating, it means you missed payments in the past. So, they increase interest rates and give no option of deposit finance to recoup the money as fast as possible.

However, there are specific ways by which bad credit car finance will help you get the car you want.

Things to consider

1. Hire purchase

Hire purchase costs less when you want to own the car by the end of the contract. This is an excellent option to consider when you want to own the vehicle as you have to pay lower interest.

Monthly instalments are a bit high because there is no option for a big final payment, and it covers the overall cost of the car. So, you will automatically own the vehicle once all of the monthly instalments are made.

2. PCP purchase

PCP finance offers you low monthly payments, and you are free to buy the car if you want at the end of the agreement.

However, if you do not want to purchase the vehicle at the end of a contract, then you are free to hand it back to the dealership and walk away or finance a new one.

Monthly payments include the difference between the initial price of the car, deposit, and predicted value of the vehicle at the contract end in addition to interest.

This allows you to return the vehicle at the contract end and walk away without paying extra (provided you don’t exceed the mileage limit and the car’s condition is in good shape) 

3. Bad credit car finance options

For people with low credit scores, there are two types of finances available, namely, hire purchase and PCP finance for used and new cars.

Bad credit will lead to a higher interest rate than offered to customers with good credit scores, and you will likely need to make a deposit to start the process.

Offering a deposit is a way to recoup the finances quickly; however, it reduces monthly payments too.

4. Take a look at your credit file

You should check on your credit file before applying for car finance. Make sure all of the information is accurate and up to date. You can check it online.

Wrong information can affect your credit score even if it is a minor error like a current address. Distance yourself from financial partners with whom you are not connected anymore because if they have low credit scores, then it will affect yours too.  

It is crucial in case you do not have a good credit history and applying for bad credit car finance.

5. Credit score

When you have bad credit and need car financing, then the lender needs to assure that you can pay back your funding or loan. A low credit score means that it was difficult for you to repay in the past.

A credit score is a mirror of your financial health, if it is good, then your financial status is secure, and you can easily make the repayments in the future.

Lenders use soft or hard searches to check credit scores. In hard searches, lenders can see your full credit card history and can view when you last applied for a line of credit, and whether it was rejected or approved.

However, potential lenders should inform you that they are going to perform a hard search.  A soft search means that a lender can find and view your credit file, and it does not harm your credit score.

Improve your chances of getting bad credit car finance

1. Consider a guarantor loan

Some companies offer a loan if you have bad credit, but the drawback is that their interest rate is higher. Thus, there is an alternative way to deal with this issue with a guarantor loan.

Consider some trustworthy person who can be your guarantor, so in case you are unable to make a payment, the debt passes to them. Lenders have lower risk in this way, and they can offer you a better rate of interest than if you were borrowing on your own.

Being a guarantor is a responsible task, and if both of you are unable to pay the amount then legal action can be taken against both of you.

2. Know your budget

Finance is the best way to make your dreams come true, and you can quickly get the car by paying the amount monthly. However, make sure that you can afford the monthly instalments.

It will be hard for you to repay the finance if you already have high debts.  Moreover, other costs are also associated with owning a car like road taxes, insurance, fuel costs, MOT, servicing costs, breakdown coverage, and more.

So before making any decision, ensure that you can quickly fulfill all of these requirements.

3. Clear your debts

Clear your debts when you are going to apply for bad credit car finance, as this may trouble you if you had a problem with the repayment of your debts in the past.

Clearing your debts before applying for bad credit car finance will help you increase your credit score. Lenders want confirmation that you are able to make timely payments to your bill.  

So, paying the full bills on time at least from a few months before applying for finance can improve your credit score. 

4. Say no to multiple applications

Some potential lenders will search your credit file before lending you the money. This is troublesome when you have a poor credit history.

Make sure to avoid multiple applications at least six months before applying for bad credit car finance because, in hard credit searches, the lender will get to know that you had already sought the funds and been rejected in the past.

It may harm your credit score too, and lenders will think that you desperately need credit. 

Improve your credit rating

1. Deposit increase

With PCP or hire purchase, you will be asked to deposit usually 10% of the loan amount, but in case of a bad credit car finance, this deposit may increase.

Deposit more money as it helps to boost the lender’s confidence and make your monthly payments lower with a better rate of interest.

2. Disassociate with people having bad credit

You may have a financial partner whose credit history is unsatisfactory, so in this case, it will affect you too and will drag down your credit score.

In this case, you should immediately issue a notice of disassociation so that you can escape your credit score from the harmful effect. After some checks, this person will be removed from your financial life.

So, in case of a bad credit car loan, you should immediately work on this aspect.

3. Pay your debts in a timely manner

Timely paying your debts will upgrade your credit score, and it will be a good sign for lenders too. It also shows that you are a responsible borrower. Pay your debts in a timely manner to escape from a bad credit car loan.

4. Electoral roll registration

Make sure to register on the electoral roll because lenders use it to check names and addresses during their credit checks and registration makes the checking process easy for lenders to keep your application going without a hitch.

Why do younger adults have bad credit?

Drivers who are in their early 20’s may have a poor credit score despite having no financial difficulties.

Though it is not their fault because they have never used a credit card, finance, or taken out a loan previously, and thus they don’t have anything to show lenders that they can make timely repayments and are unable to make a secure credit score.

Young people who regularly change their address and have no regular employment because they have just left education may have a weak credit score.    

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Categories: Car Finance
Tags: Bad Credit How To