Compare Bad Credit Car Finance
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If you have a bad credit history, don’t assume that this means that you won’t be able to borrow money for a car. What it does mean is that you will be likely to pay more interest. The good news is that a car loan that you pay off in full and on time can be the first step you take towards rebuilding your credit record and getting better deals in the future. You should always compare bad credit car finance options to ensure that you get the best deal under the circumstances.
In fact, there are always lenders who will be willing to lend to you if you have an Individual Voluntary Agreement or Country Court Judgement. You can also get a car loan if you have been made bankrupt in the past or are self-employed, and this has affected your credit history. The best way to see what is out there for you is to run a bad credit car finance comparison.
Product types in a bad credit car finance comparison
There are three types of car finance products that you could apply for.
Hire purchase
This is a great option for people with bad credit. It typically has the highest approval rate of any car finance option. The terms are usually between one and five years. They will be likely to do a credit check and will also ascertain that you can afford the monthly repayments. The repayments are a combination of repayment and interest and if you should suddenly be able to afford it, you can pay the total off early. You will own the car at the end of the agreement.
Personal contract purchase
This option is less likely to be available to those with bad credit, but is an option worth considering. The monthly payments with this option are usually low and the difference between personal contract purchase and hire purchase is that you have several options at the end of the agreement.
The payments are lower because they do not reflect the full cost of the car. At the end of the agreement, you can pay an optional final ‘balloon’ amount to make the car yours. You will also need to set an expected annual mileage limit before signing the agreement. If you go over this limit, there are penalties when you return the car at the end of the agreement.
Once the agreement is completed, you can either return the car, pay the final amount and own the car or use the car to part exchange for a new car on a similar agreement. Each time, make sure that you compare bad credit car finance to ensure you’re getting the best deal.
Personal loans
If you can’t afford to pay for a car with a lump sum, using a loan to spread your payments is a good option. With a poor credit rating, you will find that there are fewer deals for you and the interest rates will be higher. It’s best to view this as a necessary stepping stone to better deals in the future, and if you carefully carry out a bad credit car finance comparison, you should be able to find something that works for you.
Credit score considerations when you compare bad credit car finance
Your credit rating will suffer if you have taken out a credit agreement in the past and failed to make payments on time. There can be many other reasons too, such as:
- Not having a long credit history that lenders can view to check your reliability. This could be because you are young or have lived in another country.
- Being made bankrupt or having failed to meet the terms of a previous credit agreement.
- Not being on the electoral roll. Lenders will want to confirm your address and this is a good way to check your official residence.
- You have applied for a lot of credit in the past. Every time you make an application, it leaves a ‘footprint’ on your file, whether you were approved or not.
How can I improve my credit score before I compare bad credit car finance?
There are several things that you can do to improve your credit score. If you have a poor rating, it won’t magically improve to a good rating overnight, but you can often increase your score.
- If you owe any money to any other lenders, pay these amounts off immediately if you can.
- If you’re not on the electoral roll, apply to be included immediately. Bear in mind that the electoral roll doesn’t update automatically, but on a periodic basis. Find out when the next update is and make any applications after this date, to ensure that it appears on your file.
- Get a copy of your credit record form the main credit agencies. You can usually find out online which lenders use which agency to check their applications. If there is any incorrect information on your file, contact the agency and ask them to put it right.
- If you have any friends, flatmates, family or ex-partners with bad credit, ensure that you don’t have any joint credit agreements with them. You can file a notice of disassociation to do this if necessary.
- Don’t apply for any other new credit before applying for your car loan.
- Try to increase your deposit. The more you have been able to save, the better your application will appear to lenders. This could make the difference between acceptance and rejection and could also result in a better interest rate, in turn reducing the cost of the loan overall.
How can I get started?
The information that you will need before applying for bad credit car finance is broadly similar to any other loan. You will need to know how much you want to borrow and how long you will need to repay this amount.
Think about whether it is really affordable once you take into account your other outgoings. It’s likely that your credit has been damaged by overestimating what you could afford in the past. Never enter into a loan agreement if you think that you will struggle.