If you’ve been turned down for credit in the past, you might assume that buying a car on finance is out of reach. However, getting car finance with bad credit is often still possible. While your credit history can influence the finance options available to you, it doesn’t automatically mean you’ll be refused.
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What Is a Credit Score?
A credit score is a number that gives lenders an indication of how you have managed credit in the past. It is based on information held on your credit report, including:
- Previous loans and credit agreements
- Credit card repayment history
- Missed or late payments
- Outstanding debts
- Electoral roll registration
- County Court Judgments (CCJs)
- Individual Voluntary Arrangements (IVAs)
- Bankruptcy records
These things can be an indicator to lenders that you’re reliable at paying your debt back on time.
What Causes Bad Credit?
There are different factors that cause bad credit, this includes
- Missed payments
- Defaults
- Bankruptcy
- CCJs
Having a limited credit history can also make borrowing more difficult, so if you’re new to credit you may face limited lender options or a higher interest rate.
How to increase your chances of getting finance with bad credit
There are ways to increase your likelihood of approval for car finance, this can include avoiding making multiple applications, keeping up to date with current payments, and putting down a deposit.
How Much Will Bad Credit Affect Interest Rates?
CarMoney bad credit car finance can help drivers access funding for a vehicle, although your credit history may affect the interest rate offered as lenders may view you as a higher-risk borrower. Typically, interest rates are calculated by considering the deposit amount, the length of the agreement, and vehicle details such as age and value.
When you have a bad credit score, you’re likely to face a higher credit score, however applications are assessed on a case-by-case basis, so you won’t know your interest rate until it’s provided by the lender.
Types of car finance
The two most popular car finance options are hire purchase and personal contract purchases.
Hire purchase (hp) – a hire purchase is simple; you pay a deposit followed by monthly payments over an agreed period of time with the lender. At the end of the agreement, you own the car
Personal contract purchase – a PCP is similar to HP, except at the end of the agreement you have options. You can pay a balloon payment and keep the car, trade it in for a new model, or return it to the dealership.
Final thoughts
Having a poor credit history doesn’t prevent you from buying a car. While your options may be more limited, getting car finance with bad credit is often achievable with the right lender.
Before lending, be sure to review your current credit score and financial standing to estimate if you’ll be able to get car finance. If you have time, try to improve your credit score before applying.
Please note this is a contributed post.
