Bad Credit and Car Finance: How To Get Approved

Bad Credit and Car Finance

Nothing compares to getting behind the wheel of a new car. There are endless possibilities, road trips, commutes and experiences to discover. But the only thing standing in your way is the means to finance such a significant purchase. 

Throw in a complicated credit history, and your chances of getting approved are long lost, right? Well, not exactly. With a more customer-focused approach to financing, where lenders are more understanding of their customer’s situations, there’s never been a better time to give car financing a shot. 

Here are our top tips to getting approved when you have bad credit history:

First off, what is bad credit car finance?

Life is a complicated affair, and sometimes we hit a few stumbling blocks along the way that end up having a negative impact on our bank balance. You might miss a phone bill or forget to check your mortgage repayments, and then wham! You have a default against your credit history, and getting a loan or financial agreement from anywhere has become nigh on impossible. 

Fortunately, the car finance industry quickly realised that we’re all human, and some of you need a helping hand to rebuild your snowballing credit score. That’s where bad credit car finance comes in – enabling those who have a poor credit history to receive a loan that they have been unable to borrow elsewhere. 

What sort of loans can I get?

Bad credit car finance is in essence still car finance, just with a few minor tweaks to ensure the lender gets guaranteed repayments, such as having a guarantor, secured assets and slightly higher interest. It covers the three main types of finance:

Personal Contract Purchase (PCP)

Considered the most popular financing option, PCP allows you to place a lump sum deposit (typically 10%) and then the rest of the amount is paid off in manageable, fixed monthly installments. The car is yours as soon as the final repayment is made.

To speed up the repayment process, you can pay a final lump sum towards the end of your contract. But with any loan, you need to stick to your agreed terms and conditions throughout (mileage allowance, maintenance etc) and stay on top of your payments – you want to improve your credit score after all. 

Hire Purchase (HP)

If you find a more flexible lender – they are out there! – a hire purchase loan takes the pressure off of you and is secured against your chosen car instead. Again, you are required to place down a lump sum deposit before your monthly repayments begin. 

This type of loan is harder to get approved for with bad credit, but it is possible. 

At no point can you part with your chosen vehicle unless you seek permission from the lender first or have made your final repayment. The biggest perk is that you get a whole heap of bonuses, such as servicing to take the pressure off your bank balance. 

Personal loan

First off, a personal loan is an unsecured loan. So it isn’t secured against any assets like your house. It comes with a fixed term agreement, where you have to pay back all the interest on the amount you have borrowed. 

The best part is that the rate of interest is fixed, and is included in your monthly repayments. 

Like any type of loan, bad credit car finance requires you to stick to whatever agreement you have made with the lender. One of the biggest benefits is that you can boost your credit score by making sure you stick to your monthly repayments. The best specialist lenders out there will make sure that they get you the best deal that won’t put you out of pocket. 

Take a look at your credit report

Yes, you might have a “bad” credit score, but what does that actually mean? 

Understanding your credit history is the first step to recovery, and the best way to see where you have missed payments in the past is to use a credit check service. Most banks and online providers provide this service free of charge, and should identify any active credit, missed payments and who you are financially linked to. 

While you are there, make sure that all your personal details are up to date to protect you from potential fraud. 

Just make sure you read the fine print, and ensure that only a soft credit search is undertaken. That way, only you can see that a check has been made. 

How to ensure you get approved

Anyone from the self-employed to those on benefits, people who have CCJs and more can get a bad credit finance deal. But ultimately, it is the honesty of your answers that swing specialist lenders in your favour. 

Evaluating your budget ahead of application will have a more positive impact on the lender.   Make sure you identify all your outgoings such as mortgage, rent, food, utilities etc vs fuel, tax, insurance, running costs and interest before commiting to a borrowing amount. That way, you are sticking to what you can reasonably afford to ensure you never miss a repayment again. 

Other things to check:

  • Update all personal details to your current situation
  • Identify through credit checks where you have missed payments in the past
  • Be prepared to ask a close friend or family member to be a guarantor
  • Ensure that any potential guarantor have a good credit score
  • Be prepared to submit evidence such as benefits, employment history and asset information

Like anything, there are no hard and fast guarantees that you will be approved regardless of your credit history. But, with a range of reputable, bad credit finance specialists at your fingertips, your chances of getting approved today are more likely than ever. 

Having “bad” credit doesn’t mean you are barred from ever getting finance again. If anything there are more opportunities to rebuild your credit score than ever before. Are you ready to sit in your next hot ride? 

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.