Can I Get Car Finance If I Have A Low Credit Score?

Is your credit score not all you hoped it'd be? 😶 Don't worry because all is not lost! 😀 If you have a poor credit score, you're probably worried about car finance eligibility. However, you should know that having a lower rating doesn't mean you can't get finance. Many lenders in the UK specialise in giving loans to individuals with less than excellent scores.

Lenders connected to the dealership, banks and other car finance companies do have to get the credit history for their borrowers before finalising the loan application. For personal loans at the bank, the requirements are much more strict, and you need to have a strong credit rating to qualify. But there are other lenders you can consider.

How can you get car finance with bad credit in the UK? Let's have a look.

What's a Credit Score? 

A credit score is a rating check, or credit check used to examine your financial history. The lender uses this report to determine your ability to pay back the loan. Your score acts as your financial footprint that results from all your previous financial transactions, loans, debt, etc. 

Bad credit scores can result from bankruptcy, late bills payment or missed loan and mortgage payments. Any borrowing, from a Buy Now Pay Later product to car finance, can negatively affect your score if you default or miss payments.

In the UK, firms such as Experian, TransUnion, and Equifax calculate credit ratings. These credit reference agencies compile all the personal and loan data for UK citizens.The scores might differ between agencies but will paint a picture of your financial situation and capabilities.

Before applying for vehicle financing, you can contact any of the three reference agencies for a credit report. They should be able to provide you with a reference file with a breakdown of your credit rating.

It's a really good idea to check this periodically, as mistakes can occur, and you need to check if your address and all your details are correct. Do this before any important making any application to borrow. 

The lender uses the report from the reference bureau to decide on your eligibility. They also ask follow-up questions about your income and driving experience. After that, they can now calculate their own in-house credit score to determine how much loan to give you.

How To Apply For Car Finance With A Low Credit Score

With a poor credit score, it gets tougher to get approval for a car loan. The deals provided by the lender might not be the best. Here are the key things to know before applying.

Lenders Are Different

Not all lenders give car finance with bad credit. If your score is average or very low, some lenders specialise in providing loans for such car buyers. It would help if you researched these types of lenders before settling on one.

Higher-Interest Rates

Bad credit history makes you appear risky. The lender might approve your loan but charge higher interest than usual. If you have a history of not paying back loans, the lender has to cover the risk and costs if you don't pay off the car finance.

How To Boost Your Car Finance Eligibility

Once you get the report from the credit reference agencies, you can take some steps to improve your rating before applying for car finance.

Deal With The Credit Score Discrepancies 

Identify any weak areas or errors in your credit history and correct them. If you spot any mistakes on your report, you can reach out to the agencies to rectify them. Also, ensure that your information is up to date. The agencies will make corrections, if needs be, within 28 days.

Make Repayments On Time

Poor credit score results from late payments or default on debt. If you have any obligations, it's essential to keep making repayments. This tactic displays your commitment and will influence the lender to trust you better.

Making these payments can also increase your future chances of receiving a better car finance deal. Evaluate your current spending and pay off your credit cards. If your repayments are in order, you are more likely to be accepted for car finance.

Avoid Taking Too Many Loans

When you take too many loans, it appears like you are struggling financially. Lenders will shy off from approving your loan request because this reduces your credit rating.

Pay off one loan first before approaching a dealership or bank for an extra loan. You can also lay off new loan applications until the old ones are cleared.

Pay A Higher Deposit

Most car finance companies require buyers to pay a 10% deposit when getting a loan from them. You can opt to pay a higher amount than this to show your commitment. The lender will trust you better when it comes to paying off the monthly payments.

Keep Credit Card Accounts Open

Lenders can look at your credit card transactions to weigh up your ability to pay back the loan. Therefore, it's better to keep the account open as evidence of your reliability.

FAQs

If I Have Bad Credit, Can I Use A Guarantor?

For buyers struggling with improving their credit score, you can sometimes use a guarantor for the application. Your loan co-signer has to be in a stable financial situation and have the ability to pay off the loan on your behalf. A check will be done to establish their credit rating. The guarantor makes you look trustworthy and helps you get better interest rates.

Who Finances Cars For People With Bad Credits?

Several car finance companies provide car finance with bad credit in the UK. Their teams review your application and credit rating to determine how much to loan you and the interest rates they will charge. Some lenders also have deals with manufacturers who provide incentives for buyers.

Do I Have To Pay A Deposit?

You can get car finance without a deposit. Some lenders offer 0% deposit car finance options. Therefore, you should research these companies before deciding on a lender for your vehicle if you don't want to pay a deposit. 

Getting Approved for Car Finance Despite a Low Credit Score

Financial lenders make a provision for car buyers with a low credit score. Each of them uses different criteria to gauge the ability of a loan applicant to pay. So, if one company has stringent rules, you can still approach another firm specialising in car finance plans with bad credit.

Before you apply for car finance, have a look at your credit report. Once you have an idea of your score, take a look at some of the ways in which you can look to improve your credit score. 

If you'd like to check if you can get car finance with Carmoola, begin your finance journey and see how much you can borrow in just 60 seconds.