How to Secure Car Finance When you Have Poor Credit

If you have a low credit score, you may already be aware of the impact it has on getting loans or finance. Car finance lenders may be put off by customers with a poor credit score as they are more likely to default on future loans. Being declined car finance can be disheartening and for many it can mean the end of the road when it comes to finance. However, there are ways in which you can increase your chances of getting a car loan when you have a poor credit score

Why does bad credit affect car finance? 

When you have a bad or low credit score, it usually indicates you’ve had problems in the past with making repayments on time, sticking to the rules of your credit agreements, having high levels of debt or no previous credit history. All of which increases the risk to the lender, and you may be more likely to default on future finance too. Car finance lenders typically tend to favour good credit applicants and are more likely to offer them finance.  Due to their previous history of borrowing, good credit applicants usually have strong evidence of being able to handle their credit responsibly.

Work on your credit score  

It may seem obvious but the easiest way to secure a bad credit car loan is to raise your credit score. It can take time to improve your credit score but it’s the best way to get a better car finance deal and open up more finance opportunities for you. Below are a few easy ways to help raise your credit score. 

  • Make payments on time and in full. The most common reason for a bad credit score is an inability to make finance repayments on time. To help build better credit habits, you should meet all your current payments on time and in full. Setting up direct debits can be a great way to make sure the payment is always met on the required date. 
  • Reduce the amount of debt you owe. Your credit score also takes into account how much debt you currently owe to lenders. High levels of debt can be negatively impacting you score, and it also makes it harder to take on more credit. Before applying for finance, you should try to clear the debt you currently have first.
  • Don’t rely too much on credit. Having credit accounts is actually a good thing as long as you use them wisely. You shouldn’t rely too much on credit and instead only use credit little and often. Your credit score can be negatively impacted if you are maxing out your credit limits. You should only try to use around 30% of your available credit at once. 

Put down a deposit for finance 

When you have bad credit, lenders may be worried about the likelihood of you paying your loan back on time and in full. Having some money to put down at the start of the agreement can help to secure finance and instill more trust with your lender. Putting in more money at the start of the agreement reduces how much you borrow from the lender and makes the loan amount smaller. A smaller loan can mean lower monthly payments too. 

Find the right bad credit lender

When you have a poor credit score it can be harder to get approved with banks or mainstream lenders. There are now more bad credit specialist lenders joining the finance market who can help people with low credit scores get approved. You could also consider using a bad credit broker who has access to multiple lenders at once. This can save time and protect your credit score when making multiple applications with different lenders. You only need to apply once with the broker, and they find the most suitable finance package on your behalf from their panel of lenders.

Get a guarantor to help you

Guarantor car loans are when a friend or family member agrees to pay your loan if you fail to do so. If you miss a payment on your car finance deal, your guarantor will have to make the repayment instead. These can be easier to obtain with bad credit as the lender essentially gets two chances for the loan to be repaid. However, if you’ve had problems in the past with repayment deadlines, it may be hard to find someone who will be your guarantor. 

Choose hire purchase car finance

A common car finance mistake for drivers is not choosing the most appropriate car finance agreement for their circumstances. Hire purchase can be a good option for bad credit applicants as it’s a form of secured loan. This means if you fail to repay your loan, the lender owns the car throughout the agreement and has the right to take the car off you. Hire purchase splits the loan value into equal monthly payments over the term so when the deal ends you have paid off the value of the car and you can take ownership of the vehicle so it is yours to keep.