If you’re looking to get a car on finance, you may be wondering what your chances of approval are when you have a low credit score. It is true that it can be a little harder to get approved and with some lenders, you may be declined. However, car finance is becoming more accessible than ever, and more specialist lenders are helping people with low credit get a car. If you’ve already been declined, there are factors you could consider before you apply for car finance again. The guide below has been designed to help you get a car on finance with bad credit and the factors that may affect your approval.
Why is credit score important for car finance?
It is very rare that you would come across car finance with no credit check as lenders use a credit check to see if they want to offer you finance or not. Most lenders only use a soft search credit check though which doesn’t affect your current credit score and isn’t recorded on your credit file. A credit score allows the lender to see how you’ve handled credit in the past and if you can be trusted to pay back your car finance deal based on your previous behaviour. The best car finance rates are usually reserved for those with good credit scores as they tend to have a track record of making payments on time and in full, low levels of existing debts and handled their credit responsibly.
Can you get car finance with a bad credit score?
You may have heard the common myth that you can’t get a car on finance with a low credit score, however this strictly isn’t true. There are many options for people with bad credit to get a car on finance, but it may take some work beforehand. There are a few factors you can consider to help increase your chances of getting an approval and also secure a better rate with the lender.
- Improve your credit score
It may sound obvious but increasing your credit score is your first port of call if you want to get a car loan. A better credit score opens you up to better credit limits, lower interest rates and easier acceptances.
- Choose the right lender
In some cases, you may be applying for bad credit car finance with the wrong lender. Mainstream, prime lenders are more likely to decline you as they reserve their rates for those with better credit score. You could consider using a bad credit finance lender who have specialist packages for those with lower credit scores.
- Choose a cheaper car
The higher the loan amount, the higher the risk it poses to the lender. By choosing a cheaper car to finance, you are recuing the loan amount and the lender doesn’t have to lend you as much. A smaller loan amount can also make it more manageable for you if you have existing debt.
- Save for a deposit
Having a deposit to put down for finance can show good financial responsibility to the lender and also increase your approval rating. Not only can it benefit the lender, but it also means you don’t have to borrow as much as you are putting more down at the start of the deal.
- Choose hire purchase
There are certain types of car finance agreements that suit some people over others. For example, a personal loan is most beneficial to those with better credit scores. Hire purchase can be suited to people with bad credit scores as they are a form of secured loan. This means the lender owns the car throughout the agreement and if you fail to stick to the repayment schedule, you could risk losing the car.
- Remove any negative financial links
When you take out finance or credit with someone else, you will become financially linked on your credit files. If you no longer have active credit with someone who has a low credit score, it’s best to remove them from your credit file. This is because their low score can be negatively affecting yours too. You can remove them from your credit file by contacting the credit referencing agency who provided your credit file.
- Make payments on time
One of the easiest ways to prove your creditworthiness and also increase your credit score is to make all your current payments on time and in full. Having evidence that you can control your current credit agreements responsibly is a great way to help secure finance in the future.