If you’re looking to get a car and you have a low credit score you may be worried about your chances of approval. It’s a common car finance myth that having a bad credit means you can’t get approved for finance.
It can make your options limited, or you may even be declined but it doesn’t have to be impossible! With the emergence of more subprime and bad credit specialist lenders joining the finance market, it can now be more accessible to get a car when your credit history has been adverse. The guide below looks at how to improve your chances of getting a car and also why your car finance approvals are affected by a low credit score.
How does credit score affect car finance?
When it comes to getting a car on finance with a bad credit score, it’s all about risk. The lender is the one who will provide your finance deal and your credit score can indicate the likelihood of the lender getting their money back on time and in full. The best car finance rates are usually reserved for people who have a good credit score due to a long history of being able to meet financial commitments and handle their credit or finance responsibly You will usually find yourself with a low credit score if you have missed payments, made late payments or have high levels of debt. If you’ve handled your finance incorrectly in the past, lenders may be worried that you are more likely to default on your loans again.
How to increase your chances of getting approved for car finance with bad credit:
When it comes to bad credit and car finance, it’s not the end of the road. There can be ways to increase your chances of getting an approval and taking some time to put yourself in the best position before you even start applying can increase approval rates.
Make payments on time
One of the easiest ways to increase your credit score and help prove your creditworthiness is to meet all your current financial commitments on time and in full. By doing this, you can show lenders that you can be trusted to make your payments and instil more trust that you’re less likely to default on their loan too. If you’re struggling to meet your current financial commitments, it’s never a good idea to miss payments and instead you should talk with your lender to see how they can help.
Reduce debt
Your credit score also takes into account how much debt you currently owe and if you have high levels of debt or credit cards that are maxed out, it can put lenders off as they may think you can’t handle taking on any more credit. Not only should you try to reduce your debt first to help approval rates, but it can also make your car finance deal more manageable as it will free up extra income to put towards your payments.
Fix your credit report
Before you make any application for finance or credit, you should always start by checking your credit report to see if its accurate and up to date. The information listed on your file is really important and having misinformation can be negatively impacting your credit score. Lenders also use your report to cross reference your details on your car finance application and if it does not match up, they may be worried it is a fraudulent application in your name and decline you.
What else do lenders consider before you get approved for car finance?
In some cases, you may have a great credit score and a good history or making repayments and still be declined car finance. There are also a number of factors that lenders take into consideration when deciding whether to offer you finance or not.
Employment status
On your car finance application, lenders will ask what your current employment status is and how much you earn. Many lenders have a minimum income amount that needs to be met as part of their criteria. Ideally, applicants will meet the income criteria and have been in a steady job for over 3 months. If you aren’t currently employed, it can be possible to get a car finance on benefits, but you will need to prove your benefit income and also meet the minimum threshold. It can be worth taking some time to see what lenders require as their criteria to help get you approved.
Age
In some cases you may be refused car finance simply because you do not meet the age criteria. Car finance is a legal agreement which means you need to be at least 18 years old before you can get approved. You may also struggle if you are over 18 but haven’t had chance to build a credit history yet as lenders can’t predict what type of borrower you will be. In this situation, it can be beneficial to take out a credit card and make small purchases each month which you always pay back on time and in full to help prove your creditworthiness. Similarly, many lenders also have a maximum age limit of around 70 years old.
License type
If you’re going to be driving the car you are financing, you will need a full UK license and will be expected to show proof of the license you hold. There can be options for provisional license holders to get a car on finance, but it can be limited, and it could be worth waiting a few months until you pass your test instead. Many lenders also now accept European license but do require 3+ years living address history in the UK before you can get approved.
