If you have a low or bad credit score, you may be wondering what your chances of approval are. Or if you already have been declined car finance, you may think you are out of options. However, getting a car with bad credit doesn’t have to be impossible. There are a few ways in which you can prepare your application before you even start looking at different lenders and understanding how a low credit score affects car finance can be the key to getting approval. The post below looks to explore how you can increase your chances of getting the car finance approval you need, even when you have bad credit.
Why does bad credit affect your chances of approval?
Car finance is a process where you borrow money from a lender or secure the finance against a vehicle of your choice. The lender gives you the money or buys the car from a dealer, depending on which form of finance you choose. You then make monthly payments with an agreed interest rate till the end of the finance term. When you’ve got bad credit, it usually indicates that you have missed payments in the past. From a lender’s point of view, this increases the level of risk as you are more likely to default on any future loans or finance too. However, with some careful planning and investment in your credit score, you could get the car finance approval you need.
Will I get a good car finance deal if I have bad credit?
It’s a common car finance myth that having bad credit means you can’t get approved but with a sky-high interest rate. Whilst some companies may do this to help secure the loan, their more options for drivers nowadays. The best car finance rates are reserved for those with good and excellent credit scores and improving your score can help save you money. However, there are more specialist bad credit lenders joining the finance market and they solely focus on selecting the best car finance package for drivers with low credit.
Ways to improve your chances of getting a car on finance with a low credit score:
Whilst it can be possible to get approved for car finance with bad credit, there are a few factors you could consider to help increase the likelihood of getting a car with bad credit before you even start making applications with lenders.
Check your credit report
You’d be amazed at how many people have never checked their credit scores or don’t even know what’s listed on their credit reports. You can check your credit report for free and view all the information it holds. Your credit report helps to calculate your credit score and having information that is incorrect or not up to date can be dragging your score down. Car finance lenders use the information from your car finance application and cross-reference it with your credit report and if it doesn’t match up, they may be worried it is a fraudulent application or not be able to find your credit report. Before you apply for finance you should check all your personal information such as your name and current living address is accurate and up to date. If you need to make any changes, you can contact the credit referencing agency that provided your application.
Work on your credit score
Having a better credit score can help you get easier finance approvals, gives you more negotiation power, and also gets you a better interest rate. It can be worth taking some time before you apply for finance to improve your credit score. You can do this by meeting any current financial commitments you have on time and in full, reducing existing debt, keeping credit applications to a minimum, and keeping your credit usage low.
Save up for a deposit to put down
Car finance agreements such as hire purchases benefit from drivers putting down more at the start of their agreement. Your finance deal is calculated by the amount you want to borrow and split into an equal monthly payment with added interest till the end of your chosen term. By putting more in for car finance, you are lowering the loan amount and helping to make your deal more affordable. It can be possible to get a car on finance with no up-front payment but it can be desirably to lenders if you have a low credit score but a deposit contribution as it shows better financial stability and means they don’t have to lend you as much.