If you’ve ever been refused car finance in the past, you may think applying for car finance with bad credit is impossible. However, not all hope is lost! When you apply for bad credit car finance, there are usually a number of options available to you.
How does bad credit affect your application?
When you apply for car finance, lenders or car finance companies will usually do a search on your credit file. Having a low credit score, can make it harder for you to get accepted for car finance. This is because you may have had trouble in the past repaying your debts or loans and lenders may think there is a chance you may not pay any additional debt back.
What sort of things affect my credit score?
If you have bad credit, you may know why that is or you may be wondering how. There are many things that affect your credit score. But it’s mainly due to how you manage your money. The main one is your payment history and if you’ve been able to make all your previous payments on time in the past. Lenders will also look at the amount of credit you have available to you and how much you have spent. If you max out credit card balances, this can suggest that you can’t handle any more credit. The number of finance applications you make also affects your score. Try not to make multiple applications in a short space of time as this can seem like you are desperate for credit.
How can I improve my credit score?
If you’re thinking of applying for car finance and you already know you have bad credit, you should think about improving your score before applying. There are many simple ways you can improve your credit score. By registering yourself on the electoral roll, you can prove to lenders that you are who you say you are and verify your address and living situation. You should also pay off any outgoings or debts for at least 3 months before applying, this way you can prove to potential lenders that you are good with managing your money. Checking your own credit on a trusted site such as Equifax is also a good idea. If you’ve taken out credit with someone else in the past, you may still be financially linked to them. If someone else has bad credit, this can drag your credit score down!
What are the different types of car finance?
There are a few ways you can get a car on finance, and which one you choose depends on what suits you. Below are the 3 main finance agreements for your car.
Personal Contract Hire
Simply put, you pick a car from a dealership and the finance company pays the dealership for the car then you pay back the finance company. This is usually done by monthly payments over 2-3 years but this will be stated in your agreement. Because you don’t own the car, it gives you the freedom to change your car when you’re bored!
Hire Purchase Agreement
This is similar to a personal contract agreement but usually includes a deposit and then monthly payments. You do not own the car until you have made all the agreed payments so you can choose whether you want to keep the car at the end of the agreement. A hire purchase is usually paid back over 12-60 months.
A personal loan is a great way to pay for a car if you don’t have the cash at the moment. It’s also handy as because it’s a personal loan, you can use it on anything that you want! Buy the car with it, or the car and the insurance or whatever deal suits you best! It also means that you actually own the car because you have bought it with your loan.