If you have a bad credit score or are recovering from missed payments, you may be worried about your chances of getting approved for a car loan. Car loans enable people to spread the cost of getting a car into affordable monthly payments. However, car finance isn’t always guaranteed to everyone and having a low credit score can mean you may struggle to get approved. However, not all hope is lost. The guide below has been designed to help you increase your credit score and to improve your chances of being approved for a car loan.
Check your credit report
If you’re on top of your finances, you may already be aware of your credit score. However, many people get declined car finance and have no idea why. Before you apply for any sort of loan or finance, you should check your credit file first. You will be able to see where your credit score is at and if it needs any work. Whilst cars on finance bad credit can be possible, it can be easier to get approved and lower your interest rate if you have a better credit score. You should also check that all your information listed on your credit file is accurate and up to date. Having misinformation can be negatively impacting your score. You can also view the applications for finance or credit you have made, and you should make sure these all look correct or you could have been the victim of fraudulent activity in your name.
Pay your bills on time
One of the easiest ways to help increase your credit score is to pay all your current bills on time. Any finance or credit you already owe should be paid each month in full. If you have a credit card, you should try to pay more than the minimum required as it can indicate to lenders that you are struggling to keep up with your current repayments. If you have high levels of existing debt, you should try to clear as much as you can to make your car loan more affordable and easier to pay back.
Increase your deposit
Many car finance deals such as personal loans or hire purchase require you to put down a deposit in order to get approved. There are many with no deposit needed but having a deposit can actually save you money in the long run. Putting more in for your car loan means you don’t have to borrow as much from the lender and reduces how much you need to pay back. This makes your loan smaller and easier to pay in fewer or smaller monthly payments. Increasing your deposit can also show financial security to potential lenders and may help to get you approved.
Apply with someone else
If you’re struggling to get approved on your own, you could consider applying for a car loan with someone else. You could get a guarantor car loan which is when a friend or family member agrees to pay your finance if you fail to do so. For the lender, this increases the likelihood of the loan being paid back. Alternatively, you could consider a car finance joint application which is when two people apply for finance on the same vehicle. Both parties are then responsible for meeting the repayments and can be a good option if you have a good income, but a low credit score and your partner has better credit.
Only apply for what you can afford
If you have bad credit already due to missed payments or high levels of debt, it’s important that you are only applying for car loans that you can afford to pay back. If not, it can cause your serious financial implications. Car loans such as hire purchase or PCP are also types of secured loans. This means if you can’t meet your repayments, the lender owns the car throughout the agreement and has the right to take the vehicle off you. When you apply for finance, lenders will usually consider your credit file and your affordability to make sure you can prove you can meet your repayments on time and in full.