Get auto financing with bad credit

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A bad credit score can seem disastrous if you’re looking to buy a new car on credit. Although lenders cannot legally guarantee that they will agree to provide you with financing, many companies will work hard to try to arrange financing or leasing for those with poor credit, it so there might still be options available to you.

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Some caution is advised, as some of these packages may carry extremely high interest rates. It is therefore useful to know what your choices are and how you can give yourself the best chance of approval for car financing.

What is a bad credit score?

A bad credit score can be caused by anything from missed credit card and mortgage payments, to county court judgments (CCJs) and bankruptcy filings.

With such a variety of variables in play, it’s good to know that a bad credit score isn’t inherently “bad.” Different lenders use different criteria to assess the risk you pose as a loan applicant, which means credit scores are relative. Just because you’ve been deemed too risky for a company doesn’t mean all companies will reject your application.

It should also be kept in mind that the larger the loan, the more stringent the stress tests are for borrowers. This means that if your mortgage application has been declined, you may be able to obtain auto financing because the value of the asset you are borrowing for is significantly lower.

How to Apply for Auto Finance if You Have Bad Credit

While some companies may approve you and others may deny you, don’t get carried away with applying to as many companies as possible – being refused multiple times for credit can, ironically, contribute to a bad credit score. .

While some companies may approve you and others may deny you, don’t get carried away with applying to as many companies as possible – being refused multiple times for credit can, ironically, contribute to a bad credit score. .

It may seem like a no-win situation, but if you think your credit may be denied, plan to spread out your loan applications over time and only apply to organizations you are actually considering. to borrow.

It’s also a good idea to check your credit score before applying for a car loan or financing. Although the results do not guarantee that you will be approved or denied, they will give a good indication of the likely outcome. Some comparison websites and finance providers allow you to enter your details on their websites to find out if you are likely to be accepted for credit before doing a full credit check.

Most credit checking agencies do a ‘soft’ check, so although there is a note on your credit report, it shouldn’t show up when a lender does a full-scale ‘hard’ credit check. on you for the financing of your car.

If you have outstanding loans, try to pay them off before applying for other loans. Also consider asking a close friend or family member to act as a guarantor, as this may make you a more attractive prospect to lenders. We have an complete guide to guarantor loans.

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I think I have bad credit. Who will give me car financing?

If you’re fairly certain you have bad credit, don’t assume you’ll be stuck with a lender that specializes in extending credit to high-risk customers.

These subprime lenders may be more likely to give you a loan or get you car financing, but the interest they charge is likely to be high.

Most major car dealerships charge between 0 and 7% APR, but subprime lenders can charge up to 50%, making this a very expensive option. It’s usually a better option to use a lender that specializes in auto financing, as opposed to one that specializes in applicants with poor credit, as they are likely to offer more reasonable offers.

If you haven’t already, it may be worth talking to your bank or building society as a source of credit. Additionally, local credit unions are another potential source. Some employers may be willing to give you a loan for a car, so consider asking your boss or the human resources department.

If you don’t need to buy a car right away

Most people looking for a new car should get it fairly quickly, but if you’re not in a rush, there are ways to improve your credit score in the meantime. Pulling out a credit card, using it, and keeping repayments on time, or buying a “big ticket” item like a TV or sofa are just two ways to potentially boost your score. Also make sure you are registered on the electoral lists.

Get auto financing with bad credit

If you’ve exhausted all other avenues and it seems like a subprime credit agency is the only way to go, be sure to shop around. Some car dealers will offer to pass your details to an alternative lender, but it’s worth seeing if you can get a better deal elsewhere.

Whichever route you choose, be absolutely certain that you can make the monthly repayments and keep a close eye on the APR (the interest rate). You need to be sure and happy with the exact amount the car will cost you overall and that you can afford the refunds. There is an element of risk with any loan, but remember that if you use an asset such as your home as collateral, the lender may eventually initiate repossession proceedings if you are unable to maintain repayments.

As with any financial agreement, make sure you have read and understood the fine print. Are there penalties for early termination of the agreement? Is the mileage limit realistic and does excess mileage incur reasonable charges? Also beware that some lenders will add extra guarantees or insurance policies and assuming you want them, they can sometimes be bought cheaper elsewhere.

Finally, keep in mind that just because you’ve been forced into a potentially high-interest path doesn’t mean it’s not forever: by taking out a loan or credit agreement – even if it’s expensive – and by making repayments, you’ll eventually improve your credit rating.

Click here to learn more about the three main types of car financing: Personal Contract Purchase (PCP), Hire-purchase (HP) and Personal Contract Hire (PCH).

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