Creditworthiness plays a significant role in getting finance for your new car, but what happens when you have low or no credit? The question around someone's affordability is often debated back and forth about how a credit score shouldn't be the primary reason for judging someone's ability to borrow.
There are definitely flaws to the system, especially if you haven't had the chance to build a credit score but still earn well. And people can also have good credit, yet not earn enough to borrow the sums suggested by their score.
So what's the answer when it comes to getting car finance? Are there ways to borrow without a solid credit score, or will you need to hold tight and build up your creditworthiness before landing the vehicle of your dreams?
Why is creditworthiness important?
Lenders need to decide on whether or not they think you're a reliable person who can comfortably afford to pay back the amount you borrow. Performing a credit check is the most common way to do this, with many believing it offers the most informed method for lending.
To complicate things further, each lender has different lending criteria. So you may be eligible for one lender but not the other. Other aspects, such as your income, are also considered, but the credit score is typically the most critical factor.
How long does it take to become creditworthy?
It usually takes around six months to build your profile if you don't have a credit score. That's the length according to Equifax – one of the primary credit-scoring companies – who believe half a year is enough time to show you can handle credit.
However, for many, the thought of waiting so long to build up a decent credit score isn't appealing. Sometimes circumstances mean it's impossible to wait until your credit rating is higher, and it's incredibly frustrating if you don't have a credit history but earn a good salary.
Can you have a bad credit score but still earn well?
The general premises behind credit scoring involves judging your overall credit profile. Therefore, people assume that someone with good credit earns lots of money, and someone with bad credit doesn't have a high-paying salary.
The reality is somewhat different, however. Unfortunately, people who come from overseas may have excellent credit ratings in their country, but the score doesn't travel with them. They're likely high earners without any form of creditworthiness in the UK.
The same goes for younger people, who are unlikely to have a history of debts and could still have well-paying jobs. And yet, because they haven't had the chance to build up their credit score, borrowing finance for things like a car could prove tricky.
What happens if you have low (or no) credit?
The truth is that borrowing becomes a bit harder if you don't have a solid credit score. Most lenders shy away from people without creditworthiness, as they deem them too risky regardless of their financial history.
Even if you earn well and don't have any previous history of debts, you'll find it hard to borrow with many lenders. It might sound harsh, but it's how the current system works, though there are more flexible options coming to the market.
What are the lending options for people with no credit
A secured loan is one way to borrow without having a credit score. This involves using your assets as a way of security against the loan. If you're unable to make the repayments, the lender could use the agreed assets as some form of payment.
Of course, you don't want to go around offering your personal belongings every time you borrow finance. Fortunately, if you're purchasing a car, it's becoming easier for people who earn enough to make the repayments but might not have a credit score.
At Carmoola, we take a variety of factors into account when lending for your next car. We consider all aspects of your income while trying to understand your financial profile better. This means you get the best interest rates and offers in relation to your actual financial situation.
No credit, no problem
Historically, a good credit score is essential to getting finance, whether it's for a car, credit card or mortgage. However, the landscape is changing, and more companies (like Carmoola) provide options for borrowers that look beyond a credit score. The result is sensible lending for the people who can really afford it – oh, and a set of keys to your brand new car!
Nevertheless, it's always a good idea research your credit report before you do decide to apply for car finance. Once you know what your credit score is, take a look at some of the ways in which you can improve your credit score.