Getting a new car can be a really exciting prospect and using a car loan to fund it can make it more affordable.
It can be expensive to buy a car outright, so more people than ever are choosing to finance or lease their next vehicle. But it’s worth noting that car finance is not guaranteed, and you may need to pass a credit check or affordability check before you can get approved. At the end of the day, it is down to the individual lender as to whether they want to offer you finance or not. If you have a low credit score, you may be worried about your chances of approval. If you’ve had trouble in the past with making repayments on time and in full, lenders may be concerned that you can’t be trusted to pay their finance back. However, there are a few ways in which you can help to increase your chances of getting approved for a car loan with a low credit score.
When you apply for any loans or finance, you should get into the habit of checking your credit score regularly and fixing any mistakes on your file. You should check that all your information is accurate and up to date and the details you give matches your car finance application. This makes it easy for lenders to find your credit file and verify that you are who you say you are. You should also take a look at the applications you have made for finance which will be listed on your credit report. If anything doesn’t look right, you may have been a victim to a fraudulent application in your name. If you need to make any changes, you can dispute this with the company who provided your credit file.
One of the best ways to show good financial management is to pay all your current bills on time and in full. Missed or late repayments can indicate that you can’t handle the credit you currently have and may put lenders off. They can also have a detrimental effect on your credit score. Making payments on time can help you secure a competitive finance deal and show that you can be trusted to pay back your finance on time.
If you’re struggling to get approved on your own and need a car, you may consider applying for finance with someone else. A joint finance application can be beneficial to a couple who want to apply for finance on the same car but one of you has a low credit score. Both parties are then responsible for meeting the repayment deadline and both own the car. Alternatively, a guarantor car finance deal is when you ask someone to support your application., A guarantor can be a friend or family member who agrees to meet your repayments if you fail to do so. However, if both of you fail to pay it can result in a default on your credit files or a CCJ.
Lenders tend to favour applicants who have a deposit for car finance because it shows good financial management and means you don’t have to borrow as much. The more you put down, the smaller your loan gets and the easier it can be to pay back. A deposit contribution can also help to lower your monthly payments and make your deal more affordable. If you don’t have a deposit to hand, there can be many options for no deposit car finance too.
Potential car finance lenders will take into consideration how much debt you currently owe. If you have high levels of existing debt, they may be worried you can’t pay back your loan on time. High amounts of debt also affects your credit score and can make it harder to handle credit. If possible, you should try to decrease the amount you currently owe before taking on any more loans or finance.
Many car loans can last anywhere between 1-5 years so it’s important that you can afford to meet these repayments each month. Lenders will usually require you to provide bank statements or pay slips to prove your affordability. They tend to favour people who have been employed for over 3 months and have a full-time job. Don’t worry though, there are still loans for people on benefits, but you will need evidence of the benefit income you receive and may need to earn a certain amount.
The more applications for car loans you make, the more of an impact it can have on your credit score. Hard search credit checks are usually performed when you apply for a car loan which can negatively impact your credit score. Making multiple applications can indicate to lenders that you are desperate for credit or struggling to cope financially which can be off putting.