There may come a time when we need financial help in the form of a loan to help us to get where we need to be – car finance is a good example of this. Choosing to own a car on finance means that you can benefit from a vehicle to get you from A to B, without needing a lump sum of cash to buy it outright. But there are a few factors to consider when it comes to car finance, like whether your credit score will allow you to be approved.
If you have bad credit from decisions you’ve made in the past, this may have an impact on whether you’re approved by your chosen lender. But don’t worry – there are bad credit car loans that can help, so no matter what your credit history looks like, there is a could be a finance option for you. Read on to find out more about how bad credit affects your chances of approval for car finance, and what you can do to give your score a boost.
What is bad credit?
Your credit score is a number that represents how creditworthy you are to lenders. It is shown as a score from 0-999, and the higher the score, the more trustworthy a finance lender will see you as. Generally, you want to ensure that your credit score is at least fair to good if you are thinking about applying for financial help or car finance in the future, as it will mean that you are more likely to be approved and may even be rewarded with lower interest rates.
A bad credit score is usually indicated by a score of less than 600. Bad credit can hinder your chances of being approved for loans in the future, as a low score shows finance lenders that you may have had trouble repaying debt in the past – which makes you a risk. Because of this, you may not be approved for car finance as easily as those with a good credit score, and you may find that you incur higher interest rates.
Can it impact your finances?
In short, yes – having bad credit can have an impact on your finances. There are various times throughout your life that you may need help from a lender, whether that’s to take out a mortgage or apply for a credit card. Having bad credit from previous loans means that you will be less likely to be approved. If your cash flow is tied up in paying off debts that are still outstanding, and you’re not keeping on top of managing your money, you could end up in financial difficulty.
What about car finance?
Although if you have bad credit, you may find it difficult to be approved for various car loans and finance, there are certain lenders that will consider and may approve your application. Depending on the lender you choose, they will assess the risk that comes with lending to you to decide whether you are a trustworthy borrower, and those with lower scores may end up paying a higher interest rate. When applying for car finance, it is best to shop around and compare deals to find an affordable option. Some finance lenders offer car finance specifically for those with bad credit, that is based on whether you can afford to pay monthly payments, rather than how you have managed your finances in the past – so even if you have struggled to manage your money, you can still get a new car.
How to increase your chances of being approved for car finance
If you know that you have a bad credit score and you’re hoping to own a car with the help of car finance – don’t panic, there are ways that you can increase your chances of being approved, so you don’t have to worry about incurring higher interest rates, or even being rejected, such as…
Pay off outstanding debts
This is one of the most obvious ways that you can work on your credit score. Paying off any outstanding debts means that you can free up some cash flow and improve your overall credit score. If you have credit card bills that need paying off, chip away at them until they are finally paid, you could even try and put more money towards them so that they are paid off more quickly. This will show finance lenders that you are doing what you can to improve your finances, and they will be more likely to see you as trustworthy, than if you weren’t trying at all.
Increase vehicle deposit
If you’re thinking about owning a car with the help of finance and you have bad credit, increasing the deposit that you have to put down against your chosen vehicle could be helpful. Most lenders only ask for around 10% of what the car is worth, but if you can save a bit more, this can put you in a better position, especially if your credit score is not the best. If you do not have a lump sum to put down as a deposit on your new car, it might be worth waiting until you have managed to save, so that you can show lenders you are creditworthy and be in with a chance of being approved.
Make sure you can afford it
Because car Car finance means that you can have access to a car that you may not necessarily be able to afford otherwise, and you should be aware of how much you will have to pay back each month. The more expensive the car, the more expensive the payments will be, so when you’re choosing your new vehicle, make sure that you choose something you can afford. If not, you may end up defaulting on your monthly payments, which will have a further detrimental impact on your credit score. If you choose a car that you cannot afford – even with the help of car finance – you will be at risk of falling further into financial difficulty.