If you have a bad credit score, you may be wondering what your chances are of getting a car on finance. Alternatively, you may have already been refused car finance which can be disheartening. However, not all hope is lost! There are ways in which you can increase the likelihood of getting a car finance approval. The guide below has been designed to help you understand why bad credit affects car finance approval rates and the steps in which you can take before your finance application.
Why is your credit important for car finance?
When it comes to any form of finance or loan, you will more than likely have to undergo a credit check before you can get accepted. Car finance lenders use your credit report to see how you’ve handled credit in the past and determine the likelihood of you paying your car finance back on time and in full. If you’ve missed payments in the past or have defaults on your credit report, it can be harder to get approved as you pose more of a risk to lend to. Lenders tend to prefer applicants who have strong history of making payments on time and in full and can comfortably afford to pay their finance back each month. From a lenders point of view, it’s all about future predictions and based on your previous financial history, they can decide whether they would like to offer you finance or not.
Can you get a car with bad credit?
Even though lenders do tend to favour applicants with better credit and give them access to lower rates, it still can be possible to get approved for car finance with bad credit. When you apply for bad credit finance, lenders will look at your credit score and affordability. Your affordability can be more important than your credit score as you can’t get a car finance dal if you simply can’t afford to pay it back. More bad credit specialist lenders are focusing on affordability rather than credit score as its unfair to judge applicants on mistakes made in the past. However, you can still be charged a higher interest rate than those with better credit scores as it helps to secure the deal and reflect the rate of borrowing.
Ways to improve you chances of getting car finance with bad credit:
It’s worth remembering that car finance is never guaranteed and even if you have a good credit score, it doesn’t mean you will receive a car finance approval. However, there are ways in which you can put yourself in a better financial position before you start applying.
Check your credit report
Before any application for finance or credit, you should always check your credit report. You should make sure all your information is accurate and up to date, having misinformation on your credit file can negatively impact your credit score. You should also make sure the information you put on your car finance application matches your credit. This helps to reduce any fraudulent applications and a lender may decline you if they can’t find your credit record.
Make payments on time
One of the easiest ways to improve your credit score is to make payments on time and in full. Your ability to stick to repayment schedules is really important as it shows future lenders how you will handle credit or finance. Based on your past behaviour, lenders make predictions about whether you can be trusted to handle a car finance agreement correctly.
Reduce debt
When you have high levels of existing debt, it can be cause for concern. It would be unethical of a lender to give money to anyone who can’t afford to pay it back. If you have high levels of debt and are using your credit limit to the maximum, your credit score can be massively impacted, and lenders may decline you if they think you are struggling to keep on top of your current payments. To make your car finance deal more affordable, you should try to clear any debt you currently have before taking on any more credit.
Limit applications
When you make multiple applications with multiple car finance companies at once, it can harm your credit score. Many lenders us a shard search h to take a look at your full credit report but multiple hard searches on your report in a short space of time is damaging. A hard search also allows lenders to see your full credit report, the applications you’ve made for finance and the result. If they see multiple declines on your credit report it can put them off. If you want to shop around for car finance, you should stick to soft search applications which won’t harm your credit score or be recorded on your report.
Save for a deposit
In many cases, you don’t need a deposit for car finance, but it can be beneficial when you have bad credit. Having a deposit to put down at the start of your agreement shows good financial management to your prospective lender and could work in your favour. Putting more in for your cheap used car finance deal also reduces the loan amount making your car finance deal more affordable and can lower your monthly payments.
Leave a Reply