If you are wanting to buy a new or new-to-you car, but have a bad credit history, then you might think that there's no chance at all that you'll be passed for car finance - but this isn't always the case. Many people with less than perfect credit have found themselves driving around in the shiny new car of their dreams, just by taking a bit of time to do some research and find out what options are available to them.
How Did I Get Bad Credit?
There are several different reasons why you may get a bad credit rating. These can include insolvency, County Court Judgements or maybe even just a few late credit card payments.
People who haven't had credit before and those who are self-employed can also struggle, but again, there are solutions available and it doesn't automatically mean that you won't be able to get credit.
So I Can Still Get Credit - Even if I've Been Refused Elsewhere?
Yes. Most lenders have what is called a credit scoring system where they take into account your personal circumstances, payment history and several other factors, and they assign a point value to each answer.
Whether or not you are approved or denied for credit will rest on the number of points you accrue - hence the term 'credit score'. Because this scoring system is set up by individual lenders, they do vary from company to company and just because you've been turned down by one it doesn't mean you'll automatically be refused at another.
There are companies that specialise in offering loans to people with previous bad credit, and they may have a less rigid scoring system and can use discretion to decide on individual cases. Even if you've been turned down for a standard bank loan you may still be able to get car credit as the loan will be secured against the car that you purchase, so there isn’t as much risk involved a - if you don't keep up with the payments they can just recover the car from you.
It's important to remember that you should check out your potential lenders carefully before you apply for credit because every time you make an application to a lender, a record of that will appear on your credit file for a 12 month period - and some companies will reduce your credit score by a certain amount for each search done on your name in that time frame.
So What is the Best Way to go About it?
Look on the Internet and search for Car Finance companies that will offer loans
to ‘sub-prime’ lenders – that is those with a less than perfect credit history.
There are more and more lenders who are appreciating that people do get into financial difficulty - sometimes through no fault of their own - and that doesn't always make them a bad risk. This means that there are more finance companies willing to lend to people who haven't got the best credit rating - and even those who have suffered bankruptcy or CCJs being lodged against their names.
By looking on the web you'll find lots of finance providers who are willing to take on what other lenders would consider a 'bad risk', but do be careful because there is a lot of small print to be read in this type of situation and there are some unscrupulous loan companies about too. Make sure you go with a reputable company, preferably one that is recommended to you by someone that you know, or at least one that has good customer recommendations.
Will I Have to Pay a High Rate of Interest?
If you have a bad credit history then unfortunately, you’re not going to get the best interest rate the finance company has to offer. It is likely that because you represent a risk to the lender, you’ll have to pay at least a little more in interest than those with a better credit score.
However you can still shop around between financiers and find out who will offer you the best rate and you shouldn’t accept the first one that you are offered if you aren’t happy with it.
Should I Pay a Deposit?
To further increase your chances of getting a good deal regardless of your credit history, offer a good sized deposit. If you can make a decent down payment on the car then the risk to the financier is reduced and this will be reflected in your interest rates because you will be borrowing less money. The average deposit on a car is around 10% but if you can, put down more because it increases your chances of landing the loan at a decent rate.
In summary, you shouldn't assume that having a bad credit history will stop you getting a car loan. You just have to be prepared to put in a bit more work to get a good deal by shopping around, finding a good rate and approaching a lender who will consider car loans for sub-prime customers.Make sure you read all the small print and of course - don't sign up to anything if there is the smallest chance that you won't be able to pay it back.