Car loans are on the rise and more and more consumers are choosing to use a loan or lease to fund their next car. If you’ve ever been refused car finance in the past you’ll know how disheartening it can be and multiple applications can harm your credit score! If you have bad credit you may be under the illusion that getting car finance with bad credit is impossible. However, there are many car loan/finance providers who offer options for people with bad credit.
Why do I have bad credit?
For some people, you’ll already know you have bad credit due to your financial history. However, for some it may come as a surprise. Bad credit doesn’t mean that you’re bad with your money as some people have a low credit score as they haven’t had any sort of credit in the past. Getting credit doesn’t give you bad credit, it just depends on how you look after that credit. One of the main reasons you may have bad credit is not sticking to the terms of your credit agreement such as missing payments. Late payments can also harm your credit score. Other factors such as being declared bankrupt, having a County Court Judgement (CCJ) or entering into an Individual Voluntary Arrangement (IVA) can all negatively affect your credit score.
How does bad credit affect your chances of being approved for a car loan?
When you apply for any sort of loan, lenders will more than likely check your credit file. From your credit file and credit score they can determine whether or not you should be accepted for finance. They are looking for evidence that you can be trusted to pay back what you borrow. Having a good credit score does increase your chances of being approved for a car loan. However, if you are applying for car finance with bad credit, there are many lenders who can help. Having bad credit doesn’t mean you can’t get finance and as long as you can prove your current affordability, you should be well on your way to funding your next car! Keep in mind that lenders do have different criteria and each individual’s circumstances are different.
How can you improve a bad credit score?
A bad credit score can be improved but it does take time and a little bit of effort. If you’re looking to apply for a car loan and are worried about bad credit, you may want to improve your credit score first to put you in the best position possible! Applying for multiple car loans in a short period of time can also negatively affect your credit score further as it implies to lenders that you are desperate for credit.
– Check your credit file yourself
One of the first things you should do is have a look at your credit file. Not only does it give you a better understand of what lenders can see but it also allows you to see progress. It is advised that you check your credit file at least once a month! You should also be checking for any mistakes or fraudulent activity as this can seriously affect your credit score. You can check your credit file online for free using Experian or Noddle.
– Register on the electoral roll
This is one of the simplest things you can do to improve your credit score. Even if you don’t care about voting, the electoral roll can be great for your credit score. It enables lenders to verify that you are who you say you are and your address history. Some lenders tend to favour people who are more settled and don’t move around as much.
– Pay all your bills on time
This may seem harder than it is if you have had trouble in the past making repayments. However, showing that you can pay all your bills on time can do wonders for your credit score. Even a few months’ worth of no late or missed payments can prove to lenders that you are better at managing your money than you previously have been.
– Build your credit score
If you have a low credit score due to no credit, you should consider taking out some form of credit. We don’t mean applying for a massive loan but even having a mobile phone contract that you pay back each month can help your credit score. You can also consider a credit building credit card which you can use regularly and responsibly to prove your capable of paying back your debts.
– Close any unused accounts
Lenders will take into consideration the amount of credit you have available to you. If you have a lot then lenders may think you can’t handle any more and could decline you. While dormant credit accounts don’t necessarily increase your score, it can increase your chances of being accepted.