For years, many people believed that having bad credit meant getting a loan was impossible. There are many car finance myths, and one of the most popular is that you can’t get car finance with bad credit! However, this isn’t strictly true. There are many options available nowadays for people with bad credit. However, there are some things you should know before you apply for car finance with bad credit!
If you have a low credit score, you may be worried about applying for a car loan, and if you’ve ever been refused car finance in the past, you’ll know how disheartening it can be! But not all hope is lost. There are many car finance providers who specialize in helping people with bad credit gain car finance and aim to make car finance more accessible for different circumstances.
How does bad credit impact my chances of being approved?
Your credit score is basically your financial CV and gives potential lenders a record of your credit accounts. If you’ve had trouble making repayments in the past, this can negatively affect your credit score. Potential lenders use your credit score to determine whether you should be accepted for credit or loans. People with no or low credit scores may find it harder to get accepted for finance or be offered higher interest rates as they are seen as more of a risk to credit lenders.
Check your credit file
The first thing you should do if you’re worried about car finance with bad credit is checking your credit file. You should get into the habit of regularly checking your credit file and look out for any mistakes. Something as small as a typo or incorrect address can harm your score. You should also look out for any fraudulent activity on your file. You can check your credit score online for free with no harm to your current score using Noddle or Equifax.
Save up a deposit
Even though you don’t specifically need a deposit to apply for a car loan, it can sometimes help your application. Some car loan companies provide no deposit car finance options to make your deal more affordable and spread the cost. However, putting down a larger deposit could be a positive indication to lenders that you can be trusted to make your payments on time. It can also reduce the amount you borrow!
Consider a guarantor
As a deposit, a guarantor isn’t necessary, but some applicants find it beneficial to have a guarantor. A guarantor is a nominated person who agrees to take on your debt if you are unable to pay. This can strengthen your application as it poses less of a risk to lenders. However, being a guarantor is a big responsibility, and it can result in legal action if neither of you can meet the repayments so make sure you’ve explored all options before you commit.
There are many options when applying for car finance with bad credit, but you shouldn’t rush into it. Compare rates and companies before you commit to anything! There are also a few different types of ways to finance a car, and each one is different. The most popular types of car loan include personal loans, Personal Contract Purchase and Hire Purchase. It is recommended to look into each before you commit to a car finance deal.
Improve your credit score
If you want to get yourself in the best position possible when applying for car finance, you may want to work on improving your credit score before you apply. There are many easy ways you can improve your credit score. The most obvious is to make sure you don’t miss any payments, even 3 months’ worth of payments made on time can help your chances of being approved for a car loan.
Another easy way to improve your credit score is to register yourself on the electoral roll. The info you provide on the electoral roll is recorded on your credit file and enables lenders to verify that you are who you say you are and your address history.
You should also consider closing any unused accounts. Your credit file records the number of credit accounts you have. Having a high amount of available credit could indicate to lenders that you can’t handle anymore. This can include credit cards, store cars, mobile phone contracts, direct debits, and some bank accounts.
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As mentioned before you should check your credit file around once a month. You should also check your file for any financial partners. If you’ve taken out a joint loan or finance in the past with a partner, you may still be financially linked. If you no longer need to be linked, its best to disassociate yourself. If they have bad credit, then it may be affecting yours too!