Are you finding it difficult being accepted for car finance? It could be due to having a bad credit score. But how does this affect your borrowing ability?
Firstly, car dealers don’t lend customers finance directly. They use 3rd party finance providers, so they act more as the middleman. The first thing lenders will do is look at your credit score using your credit report. This is where they calculate the risk of you being able to commit to repayments. If you have a low credit score, it can suggest that you have had trouble paying off debts in the past. This could alert the lender to repayment issues, resulting in a declined finance application.
Having a bad credit score doesn’t always relate to previous repayment issues. If you haven’t borrowed money before, lenders could consider you a risk. This is due to a lack of credit history, leaving the lender unable to determine how reliable you are.
Bad credit can leave you feeling like you have limited options when looking to purchase a vehicle on finance. Don’t worry, there are other options out there for you and we’ve listed the most common ones below.
A secured personal loan means that you can guarantee repayments with an asset that you own. With this option you will own the car outright. However, should you get into financial difficulty, there this a risk of the lender forcing you to sell your home as repayment.
Having a relative or friend to co-sign a loan and become a ‘guarantor’ is another option. Essentially, they are acting as a backup should you be unable to make repayments. While this option works for many people, it can put pressures on a friendship or relative if you miss a payment and they are left covering the repayments for you. This option also requires the guarantor to have a good credit score, so they are deemed able to pay in the eventuality you can’t.
With Hire Purchase you essentially hire the car with monthly instalments. The advantage is you will own the car at the end of the contract. But, if for any reason you miss the repayments, the lender can take the vehicle away. As this process is less risky than most, you could have a higher chance of getting accepted.
A Non-Status Lease is designed for buyers with bad credit. Instead of looking at your credit score, the lender will look at your individual circumstances. However, this process is riskier for the lender so it can be more expensive. Also, at the end of the contract you won’t own the car.
There are a few things you can do to increase your chance of getting accepted for car finance. When you apply for finance the lender checks your credit score, leaving marks on your report causing it to drop. So, try to avoid making several applications during a short period of time.
Also, be aware of your credit score and find out what could be affecting it. Visit our website for a free soft credit check and get a result within minutes without affecting your credit score!