Auto, Finance

Can you Get Car Finance with Bad Credit?

It’s still a common misconception that you can’t get any sort of finance, loan or credit when you have a bad credit score.  If you’ve been refused car finance due to bad credit in the past, you’ll know how disheartening it can be! There are many options nowadays for people with different credit scores and personal circumstances. Having bad credit does make it harder to get accepted for car finance, however, it’s not to say that it’s impossible to get car finance with bad credit!

How do I have bad credit?

Typically, many people know why they have bad credit. Whether it’s a few missed payments over the years or declaring bankruptcy, there’s usually a glaringly obvious reason why you have bad credit. For some people who haven’t take out any credit in the past, they may assume that their credit score is good. However, you can get bad credit from having no credit. Your credit score directly reflects how good of a borrower you are and if you can be trusted to make all your payments on time and in full. If you’ve had no credit in the past, then you have no credit history of making repayments which can result in a low credit score. The main reasons why you may have a low credit score include late or missed payments, bankruptcy, having a County Court Judgement, making the minimum repayment each month, defaults or no credit history.

How does my credit score affect my chances of being approved?

If you have bad credit due to missed or late payments, you may be seen as more of a risk to a car finance lender. When you apply for bad credit car finance, you may be offered a finance deal with a high Annual Percentage Rate. Usually, the better your credit score, the lower the interest rate. This is because finance lenders believe that from your past history, you can’t be trusted to pay back your loan on time and in full each month. Applying for car finance with bad credit can put a lot of applicants off as they think they will be offered sky high interest rates. However, many car finance providers don’t solely look at credit to decide whether you should be accepted for finance or not. They also take into account current affordability and the amount of deposit you can put down.

Check your credit report

One of the first things you should do before applying for any sort of finance or loan is check your credit report to see exactly where you stand. You can check your credit report online for free using a number of credit referencing agencies, including Equifax, Credit Karma and Experian. When you check your credit file, you will have access to a range of information to get a better understanding of your credit score. Your credit report includes details of your credit accounts, your current and previous addresses and any financial connections. When you check your credit file, you should make sure all the information is accurate and up to date and there are no mistakes or fraudulent activity. Even an incorrect address can harm your credit score.

Save up for a deposit

If you’re looking to improve your chance of being accepted for a car finance deal, you could consider saving up for a car finance deposit before you apply. Some lenders favour a larger deposit but there are also many no deposit car finance options available today. Putting down a deposit for car finance means that you will ultimately borrow less which can reduce your monthly payments.

Improve your credit score

To increase your chances of being approved for car finance, you could work on your credit score for a few months prior to application. There are many easy ways in which you can increase your credit score.

Register on the electoral roll

Many people don’t know that being on the electoral roll can increase your credit score. By registering on the electoral roll, you can verify to potential lenders that you are who you say you are and also verify your current address. Lenders tend to favour applicants who don’t move around as much as they tend to be more settled.

Make all payments on time and in full

It may seem really obvious and it may not be that simple if you’ve had trouble in the past making repayments. However, even a few months’ worth of making all your payments on time and in full can increase your credit score. You could set up direct debits a few days after you get a monthly income or set up payment reminders to make sure you make all your payments on time.

Close any unused accounts

It is recommended that you close any unused accounts that you no longer need. This can include bank accounts, sore cards, credit cards etc. When lenders check your credit file, they will usually look at the amount of credit you have readily available to you. Even if your credit utilisation is low, this could imply that you already have lots of credit and can’t handle any more.

Sever ties with financial partners

If you have taken out a joint application in the past you may still be financially linked to another person. If you no longer need to be financially linked, it’s a good idea to dissociated yourself. If your financial partner has a low credit score, this could be dragging your score down too.

Multiple applications

If you are applying for car finance, it’s best to limited to number of applications you make in a short space of time. Lenders will usually only provide a soft search on your credit file which doesn’t affect your current credit score. However, some lenders do provide a hard search, which is recorded on your credit file. Multiple hard search enquiries on your credit file, could suggest to lenders that you are desperate for credit and can’t handle any more.