If you have bad credit, you may already know that it can be harder to get finance or credit. It can be really disheartening being declined car finance but there can be ways in which you could increase your chances of getting a car loan. Putting yourself in a better financial position for credit can take time but the benefits of having a better credit score are undeniable. Good credit scores can benefit your life in a number of ways and help save you money on your future finances. If it’s time to get a new car, let’s take a look at how you can get approved for a car finance loan to fund it.
How do credit scores affect car finance?
When you apply for any form of credit or loan, finance lenders will want to know how you’ve handled credit in the past. They can do this by checking your credit report and your credit score. A lower credit score can indicate you’ve had trouble in the past making repayments on time, have high levels of existing debt or have no previous credit history. This can increase the level of risk to the lender, and they may be reluctant to offer you a car finance deal. However, there can be certain factors you can work on to help get a car loan.
Ways to increase your ability to get car finance
If you have bad credit, it can be harder to obtain finance approval. It’s worth remembering though that car finance is never guaranteed, and you will need to meet the lender’s criteria before you can progress with an approval. However, you’ll be pleased to know there are ways in which you can increase your chances of being approved for car finance.
Check your credit report
When applying for any form of credit, you should always check your credit report. It’s really important that all your information listed is accurate and up to date. Having incorrect information on your credit file can negatively impact your score. Lenders also use your credit report to check the details on your car finance application and if they don’t match, lenders could be worried that it is a fraudulent application. When it comes to getting a car, you should always be honest about your situation and provide all information accurately.
Work on your credit score
If you’ve checked your credit report and found your score is a little on the low side. There are a number of ways in which you can help to increase your score. If you’ve never had any credit in the past, it’s best to build a small credit history first as lenders can’t predict what type of borrower you will be. You can do this by getting a mobile phone contract in your name and setting up a direct debit to meet the repayments or using a credit building card to make small purchases each month and pay them on time and in full. To help improve your credit score, you should also meet any of your current financial commitments on time, reduce any debt, keep credit usage low and avoid taking out any new credit.
Have a deposit
There are many car finance deals that don’t require you to have a deposit but having a down payment for car finance can be beneficial. From a lender’s point of view, it shows good financial management and can help your chances of approval. For you, it can help to reduce your loan amount and make your car finance deal more manageable.
Pick the right lender
It can be hard to get car finance for bad credit if you are choosing prime lenders, banks or building societies. These types of lenders tend to offer finance to those with good credit scores and offer better rates as the risk is lower. You may be getting declined for car finance because you aren’t choosing a lender that’s suitable for your circumstances. Sub-prime or bad credit car finance specialist lenders have dedicated packages available for those with lower credit score and help make car loans more accessible.
Choose a cheaper car
When you have bad credit, it can be harder to get approved for car finance on larger loans. If you want to get a car, you could consider choosing a cheaper car or a used car. Used cars tend to be generally cheaper which reduces the loan amount. Lenders can be more accommodating if you choose a smaller loan as the risk is reduced. It can also help to reduce your monthly payments and make your deal more affordable.
Apply with someone else
If you’re struggling to get a car on finance on your own, you could consider applying with someone else. If you’re in a couple and want to share payments on the same car, you could apply for a joint car finance application. This is when two people share repayments and can both use the vehicle. If you have a low credit score and good income but your partner has a better score, you could increase your chances of getting approved with a joint deal.
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