If you have a bad credit score, it can be daunting applying for any kind of credit however it is possible to secure car finance with a less than perfect credit score. Follow our tips to secure bad
Check your credit file
Our first tip is to take some time to actually check your credit score online before you apply for any kind of credit. Doing this a few months in advance will allow you a bit of time to settle any debts if possible and report any errors that you find on your file. Checking your credit file is important because a lot of people don’t actually know what their score is or what records might be outstanding on their file. Many people mistakenly make the assumption that their credit score is bad, when it actually isn’t as bad as they think!
Any outstanding defaults on your credit file drop off after 6 years, so if you’re worried about a default from 10 years ago, it will have been removed from your credit file and lenders will no longer be able to see it. This is provided the lender didn’t take you to court and issue a County Court Judgement (CCJ) against you to recover the debt. A County Court Judgement is one of the most serious outcomes apart from bankruptcy, so you should try and address any debts on your credit file before they reach this point.
Adding yourself to the Electoral Register is a quick and easy way to increase your chances of being approved when applying for credit. Whilst this doesn’t improve your score, it does make you more identifiable to lenders by tracing your name and address via the register.
Research types of car finance and lenders
When you have looked at your credit file and made any changes that you see fit, you should research all of the different types of car finance and the lenders available to you.
There are different car finance options that all offer various ways of buying a car, so you should choose the type of finance that’s right for you. Whether you want to own your car at the end of it or would prefer a finance option that allows you to change your car frequently, you will need to do some research.
It’s fairly common to see car finance lenders that advertise guaranteed car finance but this claim is a false one. In reality, it isn’t possible for any company to advertise guaranteed finance, as it would be unethical to offer finance to every single person that applies. This type of lending would have to take no consideration for each individual’s personal circumstances and goes against the Financial Conduct Authority’s guidelines. Find out more about companies falsely advertising guaranteed car finance.
There are companies that specialise in bad credit car finance but you will generally be subject to higher interest rates than if you had a good credit score. This is due to the increased risk the lender has in providing you with finance, as poor credit scores means you haven’t kept up with your payments in the past. However, if you can prove you can afford a loan and have a valid UK driving license, then you will be able to secure car finance from a specialist bad credit lender.
Be honest and have all of your documents
Whilst it can be tempting to leave out some bits of information from your past (such as not mentioning a previous address that has a default associated with it, or say you’ve worked slightly longer at your job than you actually have) it’s ultimately better to be completely honest with the lenders about your situation. This allows them to find the best finance deal for you, and means you won’t be declined for providing false or incorrect information. Bad credit lenders are designed to help you get car finance, no matter how bad you feel your situation is.
You should also make sure that you’re able to provide all of the documents that the lender requests when processing your application. This will always be at least your driving licence so you can prove that you’re able to drive the car you need finance for. In most cases you will also need to provide proof of your income, either through a bank statement or payslip and a proof of your address.
Think about your budget
Thinking about what type of car you would like before you apply for finance is a good idea as it will allow you to think about how much of your budget you can allocate to your monthly repayments. It can be tempting to upgrade the car you originally set out to purchase if you’re approved for a bigger loan, but this will mean higher repayments over a longer period of time. Stretching your budget to accommodate higher payments could jeopardise making your repayments on time and repaying on time is the best way to rebuild your credit score and secure a better interest rate in the future.
Consider a guarantor loan
If you are refused finance after applying to several lenders, there are other options available to you such as a guarantor loan. Guarantor loans are unsecured so they can be used for anything you want to purchase – including a car! They are ideal for anyone who has bad credit as you and the lender have the safety net of a guarantor who can step in if you are unable to make payments. This greatly reduces the risk for the lender borrowing you money.
A guarantor could be a person you know, such as a friend or family member, who will be required to make the loan repayments if you don’t pay or become unable to pay. They will generally have to be aged between 18 and 75 years old, have good credit and preferably be a home owner (if they aren’t a home owner they will have to have a very good credit score).
Refused Car Finance is a bad credit car finance broker, based in the North East of England. We specialise in helping people secure various types of car finance who have a poor credit score from a panel of lenders who we work with. Our goal is to make car finance as easy and accessible for anyone and everyone.