Did you know that 9 out of 10 cars currently driving on UK roads are part of a finance deal? In recent years, finance has become a popular way for people to drive a new car that they perhaps they would have been able to afford without borrowing the money.
When you apply for finance from a lender they will carry out a hard credit check as part of your application to determine if you are eligible. This will basically assess how risky it is for you to borrow money and will determine how likely it is that you will be able to pay it back.
If you have a good credit score you are more than likely going to pass this check and the lender will typically offer you favourable interest rates. On the other hand, a bad credit score is going to through up all sorts of red flags to the lender and you might find it hard to get approved.
A bad credit score suggests a history of missed payments, defaults or debt, and this can cause your application for finance to be rejected. You can still be accepted with a bad credit score though, but you will be charged higher rates of interest on your repayments.
There are options on the market tailor made for people with bad credit who require finance. Some car dealerships will work with lenders that specialise in approving people with bad credit and their acceptance rates are much higher than average. In addition, there are other innovative solutions on the market like Pay-as-you-go finance, which are available to those who struggle to obtain finance from mainstream lenders.
Applying for Car Finance with Bad Credit
If you are applying for car finance with bad credit, you need to be focusing your applications with lenders who you know are more likely to accept you. This can help limit your chances of being rejected and you may find better deals with these type of lenders.
Being rejected for finance will only hurt your credit score further and your credit score will detail any rejected applications finance.
You should make use of free soft credit checks that will assess your eligibility for finance without harming your credit score and it can save you from being rejected on a full application.
Assess before applying whether you can afford the fixed monthly rates of the deal. This is what you’ll be paying every month so you will be expected to be able to keep up with payments.
You can speak with a finance specialist at a car dealership who can help you find a deal that matches your budget. You can also use comparison websites and finance calculators that let play with the numbers and find a finance deal right for you. You might find that putting down more of than a 10% deposit will lower your repayments and can help strengthen your position with lenders.
If you are continually refused finance you should stop applying for a few months as serial rejections will show up on your credit profile. Alternatively, you can consider leasing a car or buying used. Personal contract purchases and hire purchases tend to only be available for cars no older than 5 years. Any cars older than 5 years will not have the option of finance, so you will need to buy it outright or consider taking out a personal loan.
How can I improve my credit score to find better deals?
A better credit score will increase your chances of being approved for finance and the interest you will pay will be markedly lower. With a good credit you can expect to pay anywhere between 1 – 10% interest and those with an exceptionally good score may be eligible for 0% car finance. With a bad credit score you can pay anywhere as high as 30% interest.
Improving your credit score will require both small and big lifestyle changes. Some lenders will be more favourable to an applicant who has recently improved their credit score, even if it is still considered ‘bad’. So making these changes before you start applying again can only improve your chances.
You can check your credit score using services like Experian to give you a clear understanding of what information lenders will hold on you. Make sure there are no mistakes on your profile and take your time to assess where you have gone wrong in the past.
Registering on the electoral roll at your current address will make sure lenders have the right information on you. You should then aim to cut financial ties with anyone who has a bad credit score, start meeting your financial obligations (rent etc.), and pay off any outstanding debts.