If you’re looking to get a car, you may be wondering what your chances of approval are if you have bad credit. Many people think that having bad credit means that you can’t get approved for any loans or credit. Whilst it may reduce your chances, there are a few factors you could consider before you start applying for finance. The guide below has been designed to help drivers understand why credit scores affect car finance and also how to increase your chances of getting approved.
What is bad credit?
The term bad credit gets used a lot, but many consumers don’t actually know that that means and how you get a bad credit score. Bad credit refers to your creditworthiness. Your credit report is essentially a financial CV which shows your history of money management and paying back any loans, finance, or credit on time. A bad credit score usually indicates that you have high levels of debt, have missed payments, or made late repayments in the past. When it comes to car finance and credit scores, depending on which lender you use, your credit score many vary. Each credit agency has their own scoring criteria and what may be seen as ‘bad’ to one credit agency may be ‘poor’ or ‘average’ to another so it’s worth bearing in mind. You may also find yourself with a low credit score if you’ve never taken out finance or credit before. This is because lenders can’t predict what type of borrower you will be if you have no previous borrowing history.
How does bad credit affect car finance?
When you apply for car finance, it can be hard to get a car without a credit check as lenders want to know how you’re going to pay back your loan and if it will likely be on time. By using your past behaviour, lenders can get an idea of how you manage your finances and the likelihood of your making repayments on time and in full. If you have a bad credit score, it increases the level of risk to the lender and in some cases, you may be declined car finance. Your credit score can affect the full financial process, from the likelihood of getting approved to the interest rate and car finance deal you are offered.
Can you get approved for bad credit car finance?
It is true that having bad credit does limit your options when it comes to finance, however it doesn’t have to be the end of the road. There are many bad credit car finance specialist lenders who help people get a car. Choosing the wrong lender could see you receive a higher interest rate offered to help secure the deal. However, by using a lender that specialises in bad credit, you could get a car with affordable monthly payments to pay. Whilst car finance is never guaranteed, there are a few things that you could do to help get approved.
How to increase your chances of getting a car with bad credit?
If you’re looking to increase the likelihood of getting a car finance approval, there are a few things you can do in the run up to your car finance application to help better your case and put your best foot forward!
- Make payments on time. One of the easiest ways to increase your credit score and prove your creditworthiness is to stay on top of your current financial commitments. You should try to make any payments on time and in full for a number of months before you get a car. This can help show prospective lenders that you can be trusted to pay back your finance deal. If you’re struggling to meet your repayments, you should never miss a payment and instead speak with your lender first to see how they can help.
- Have a deposit. If your credit is a little on the low side, you could consider saving up for a deposit for car finance to help instil more trust with the lender. If you need a car in a hurry, you may be looking for car finance with no deposit if you don’t have the money to hand. However, putting more down at the start of the agreement can reduce your loan amount and make your finance deal more affordable.
- Reduce debt. Your credit score also considers how much debt you currently owe. If you have high levels of debt on credit cards and loans, it may indicate to lenders that you can’t afford to take on any more credit. Where possible, you should try to clear some existing debt before applying for finance to help approvals rates but also make your finance deal more manageable for yourself.
- Fix your credit file. Your credit file is really important and it’s essential that you keep all your information up to date. Having misinformation listed on your credit file can have a negative impact on your score and if your report does not match the information listed on your car finance application can make it hard for lenders to find your report and they may decline you in the worry that it is a fraudulent application.