The hefty upfront payments that come with buying a new car can make your dreams of driving off the forecourt seem a little out of reach – especially if you’ve had financial problems in the past. The opportunity to split this initial cost into a series of manageable monthly payments is what makes car finance the ideal solution – but it can be hard for people with poor credit scores to know where they stand when it comes to acceptance.
Luckily, at The Car Loan Warehouse, we’re experts in providing car finance for bad credit holders – meaning you could have the keys to your new car sooner than you think.
In today’s post, we’re taking you through 5 things you’ll need to know when applying for car finance with bad credit, so that you can get approved and back into the driver’s seat.
1. Interest rates will be higher
In the world of car finance, the interest rates you’ll have access to are directly tied to your credit score. The better your credit rating is, the lower level of risk you present to lenders – so an excellent credit rating will earn you a more competitive personal APR%.
Unfortunately for bad credit holders, this means the APR rate you’ll be offered will be higher in order to give lenders peace of mind – so be prepared to repay a little more. That doesn’t mean it’s the end of the road for competitive car finance with bad credit, though! Doing your research and applying for a loan through a registered broker means you’ll be able to find the very best deal available to you.
2. You may struggle to find an unsecured loan
If you’re suffering from poor credit, car finance could still be on the cards! Whether your credit score is excellent, fair or very poor, no finance provider can legally offer a guaranteed car loan – but that’s not to say there aren’t competitive finance deals available to the majority of applicants. Other than less competitive interest rates, the only other key difference when applying as a bad credit holder is the difficulty you may face in finding an unsecured loan.
Taking out an unsecured loan means the lender won’t secure your loan against any of your financial assets – meaning they have no claim to these, should you fail to keep up with the repayments. A secured loan provides the lender with more financial security, as it minimises their risk of losing money in the event that you fall behind on repaying your loan.
For these reasons, secured loans tend to be easier for bad credit holders to obtain – but that’s not necessarily bad news. In fact, unsecured loans often come with higher interest rates.
3. Applying selectively is recommended
When applying for car finance, lenders will not only see your credit rating and financial history, but also any previous loan applications you’ve made. If you’ve been refused car finance many times in the past, this will indicate to lenders that you’re a high-risk applicant – meaning you’ll be less likely to have your current application approved.
Essentially, a history of successful and responsible borrowing will significantly improve your chances of being accepted – so it’s time to refine the number of applications you make. A series of unsuccessful applications will only harm your credit score further. Be selective and consider spreading your applications over a longer period of time, rather than all at once!
Related: 5 things you didn’t know were killing your credit score
4. Repairing your credit rating can be easy
When applying for car finance, poor credit shouldn’t have to hold you back. In the long term, being approved for a loan and staying up-to-date with your monthly repayment plan is one of the simplest and most effective ways to rebuild your rating. If you’re struggling to get approved, repairing your credit score doesn’t have to be a stressful process. From showing you’re reliable at paying bills on time to registering on the electoral roll, simple steps like these can make all the difference to that all-important number.
Related: 5 steps to a squeaky clean credit rating
5. Bad credit doesn’t have to mean being refused
If the only way to buy your dream car is to get approved for car finance, bad credit doesn’t have to be an obstacle. A number of leading UK lenders specialise in providing competitive car loans for people with a less-than-perfect borrowing history, so shop around before you rush into anything.
‘Guaranteed’ car finance for poor credit holders can seem like a tempting offer, but advertising deals like these is both illegal and unethical – so we’d always recommend steering well clear of these companies. Instead, focus on rebuilding your credit rating and applying for finance deals with reliable lenders or brokers, based on a repayment plan that’s affordable for you.
Related: Bad credit car finance: what you need to know
Say goodbye to bad credit today and apply for car finance with The Car Loan Warehouse. Find out how much you could afford to borrow with our obligation-free car finance calculator, or give our friendly and professional team a call on 0800 066 2888. Our specialists will be more than happy to discuss the options available to you in more detail, so don’t hesitate to get in touch.
