Can I get car finance with bad credit?
To put it simply, yes you can get car finance with bad credit. With many people put off by the fact that car finance is a credit based transaction, its important to remember that having bad credit isn’t the be all and end all. Having bad credit doesn’t mean you can’t borrow money to buy the vehicle you need for finance whatsoever, but it may mean some lenders won’t necessarily approve you.
If you have bad credit and you are looking for a car, or if you’ve been rejected by other lenders in the past, here is a handy guide to when and how you could get car finance with a bad credit score.
What Makes Car Finance With Bad Credit Any Different To Normal Car Finance?
Car loans for bad credit are possible, and here at Car Finance Genie we specialise in granting your bad credit car finance wishes, but its important to remember that these car finance deals can have slightly different terms, and no one can ever guarantee finance. For example, a bad credit car finance deal usually means they may have high interest rates- but we’ll get to that.
If you need a car loan but have less-than-perfect credit, your financing terms are more than likely less in your favour than someone with a great credit score. Lenders use credit scores to estimate the likelihood and the risk that you will or will not pay back your loan. This means the lower your scores, the more risk they believe they’re taking on and are less likely to do it. In exchange for that risk, lenders will usually charge a higher interest rate or expect a larger deposit for example.
Someone with what is known as a subprime credit, defined by Experian as scores between 501 to 600, received an average rate of 11.33% flat APR for a brand new vehicle, whist also achieving 17.78% flat APR for a used one. These statistics are based on a 2020 report by Experian.
This means that taking some time to build your credit, if your car finance application isn’t required immediately, may help increase your chances of approval at a better rate.
Car Finance Genie specialise in bad credit car finance, giving you the best terms possible for your credit situation. However, this doesn’t stop many other websites capitalising on the fact that you have a bad credit score.
Check Your Credit
If you are unsure on what your credit is, it’s very important to check it first. If you are unhappy or underwhelmed by your credit score, you can review your credit reports for any incorrect information and then dispute these conflicting errors. Inaccuracies or incorrect information could lower your credit scores and hurt your ability to qualify for a loan or the terms of the loan agreed.
Checking your credit can also help set your expectations before you start looking for a loan. You can check your credit reports and score on various specialist credit calculator sites.
Can You Avoid Waiting?
Often, taking some time to build your credit score and get your finances in check could pay off and be a worthwhile investment if you are able to. By building up your credit score, you may be able to qualify for a lower interest rate that could save you thousands in the long term. However, many people are turning to car finance due to their old car no longer being up to scratch of this being their first car, meaning they can’t wait to build up their credit record.
In this situation, you may want to consider asking a family member or trusted person in your immediate circle to be a co-signer.
If you’re unable to delay your car purchase, consider buying a lower-priced, older, but still reliable, used car. Any vehicle that meets your needs and lender criteria could help you require borrowing less, making your application more favourable. As you pay down your loan and work on improving your credit, you may be able to refinance your auto loan for a better rate down the road.
So How Can You Boost Your Credit Score?
We’ve included our top tips to help, but please note we’ll never advise you to take these steps.
Proof Of Address
The first step, and one of the easiest ways to boost your credit score is to register on the electoral roll at your current address. Even if you aren’t a homeowner, live in shared accommodation or living at home with your parents, registering on your address is the best way to give yourself a small boost.
Make Sure Regular Payments Are Made On Time
Paying your accounts on time and in full each month, especially with a credit card, is a great way to show lenders you’re a reliable borrower, as well as being capable of handling consistent credit responsibly. Older, longer standing, well-managed but still frequently used accounts will usually also improve your score.
Build your credit history
Having little or no credit history can make it very difficult for companies to come to a decision and grant your loan. This means your credit score may be lower as a result. This is a common problem for young people, students specifically or people who haven’t had a full time job or regular income. This can also be a particular problem if you are new to the country. Building up your credit history wherever possible is a great way to improve this.
Check For Errors On Your Credit History Report
Even small mistakes, such as a mistyped address or an error in your name or the name of a previous bank can affect your score and could be enough for a lender to decide against lending you the money you need. It’s worth checking your credit report to make sure all the information on it is accurate and up to date.
If you do spot a mistake, contact the provider directly immediately and ask them to change it.
Avoid Moving Home Regularly
Sometimes moving is unavoidable, especially if your work moves with you. This also isn’t the be all and end all of having a good credit score as many lenders will look at your circumstances individually. However, it is important to bare in mind that lenders like to see stability in your life as well as your finances. Moving home frequently may make lenders think you could be having trouble paying rent or paying mortgage repayments.
Look Out For Fraudulent Activity
If fraudsters or any other type of criminal gain access to your personal details, they could take out credit in your name without you being consulted. If you see something on your credit report that is wrong, such as an application you don’t recognise, get in touch with your bank, lending provider or a financial specialist immediately.
Save For A Larger Deposit
Saving to be able to lay a larger deposit can come with a several benefits. First, bigger deposit may help you qualify for an auto loan more easily, especially if you have low credit scores. Without a deposit payment, the lender takes on more risk since they may lose more money if you don’t repay the loan. In many cases, a deposit will be required of some size. However here at Car Finance Genie we are not only specialists in bad credit car finance but also car finance with no deposit.
The more money you put down, the less you’ll need to borrow from the lender for your car. Lenders will often consider a ration based on your loan amount v the value of the vehicle you are applying for, thus improving your chances of a more manageable interest rate.
Determine how much you can afford
Before applying, it is vitally important that you figure out how much you can afford to borrow as well as how much you can afford to pay per month. Consider the costs that come with car ownership, such as fuel, servicing and mot costs, insurance and parking. Factor these into your budget if this is your first car or you currently aren’t using a car regularly but will be should your application be successful.
Many people look at the single cost of the car finance monthly payment and think it is achievable, without factoring in how much a car costs to run over the course of a month.
It may be tempting to stretch your loan term to the maximum amount of years in exchange for a lower monthly payment. But keep in mind that a longer car finance loan term will almost certainly mean you could end up paying more in interest over the length of the loan. This could mean you increase your risk of becoming financially challenged or behind on your loan, which can create some difficulties when it’s time to sell or trade in your car because you’ll owe more than it’s worth.
Speak to on of our experts today to discuss which terms may be best for you when applying based on your financial information.
So, why choose an online lender?
Here at Car Finance Genie, despite not being an exclusively online lender, we strive and specialise in car finance options for people with bad credit. This means the quickest way you can get an answer on your application is through our car finance calculator, which various other online lenders don’t have and would require a face to face visit at a dealer not online. You can find out if your car finance application was successful without even getting out of bed!
Avoid using car dealerships as despite typically have relationships with a number of banks and finance companies, they are often much less likely to be able to offer a bad credit car finance option due to not specialising granting these type of applications. They will often try to find a lender in their network that will approve you for a loan, but as many lenders steer clear of bad credit scores, this may take time and be a strenuous process that requires various communication at length or face to face visits.
Quick win dealerships. Avoid these at all costs. These type of dealerships prey on people who have had applications rejected elsewhere and are desperate for a vehicle. If you can’t get approved for an auto loan anywhere else and you need a car, a buy-here, pay-here type dealership can often seem like the only option. These “no credit check” dealerships often boast being able to offer their own loans to people with bad credit. Sounds good, right? Well it isn’t. With astronomical interest rates and completely unacceptable contracted terms, people often find themselves out of their depth with nowhere to go. Always come to Car Finance Genie first so we can talk you through your options, we’d be happy to answer any questions before you make an application.
Can I get a car loan with a credit score as low as 500?
It’s possible to get a car loan with a credit score of 500, but your interest rate will likely be higher. Your best bet, as we have already mentioned, is to either take the time to build your credit score or to save for a larger deposit to get the most favourable terms possible.
Getting a car loan with a credit score of 500 could be tough though unfortunately. The Experian report shows that only 0.37% of new-car loans and 4.35% of used-car loans issued in the fourth quarter of 2019 went to people with credit scores of 500 or lower. That doesn’t mean it is impossible, however. Apply to us and speak to one of our experts so we can help try and find a solution.
Overall, yes, the good news is car loans for bad credit are out there, and the better news is they are achievable, especially with Car Finance Genie. Try taking the steps we have mentioned, such as taking steps to improve your credit or building a much larger deposit, to achieve the best possible terms for your financial situation and relieve you of as much financial burden as possible.