How to get a car with bad credit

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There are few things more thrilling than a brand new car. A shiny dashboard, innovative tech and a gleaming new paint job make for a great time on the road.

The car you drive, for many, says a lot about the kind of person you are and can be an important status symbol. However, more and more of us are now taking on car finance loans to be able to get our hands on the brand new vehicles we dream of owning.

This isn’t an option for everybody, though: if you have bad credit, the blemishes on your credit history are likely to exclude you from being able to buy a car using traditional car finance. But, this doesn’t mean you can never get your hands on the car you want.

But first, ask yourself – do you really need a brand new car?

Before you go ahead and take steps to buy a brand new car, ask yourself if it’s truly necessary. Vehicles lose their value very quickly, so you may be able to get your hands on an almost-new or second-hand car for a fraction of the cost.

Plus, this could be an altogether better solution as it avoids taking on credit and stretching yourself financially to make your monthly payments, and it means you own your car outright from day one.

If you go down this route, it may take a little time to save up, so if you don’t have access to a vehicle you may need to look into lift sharing or using public transport while you put money away. A great option is to set up a regular savings account and move a little money into each month until you have a reasonable amount to put towards a new car.

Look for a vehicle that has relatively low mileage for its age, has a decent service history and is not due for MOT for at least six months. These three things are important when looking for a good new car that gets you back on the road, without needing to borrow money.

However, if you’re determined to get a brand new car, it is possible. In this guide, we’ll look at the different options available to finance a car purchase with credit, and how, if you have bad credit, you can still get access to a new vehicle.

Understand the types of car finance available

If borrowing money to buy a new car is what you’ve decided to do, then there are a number of ways you can consider financing your car purchase. It’s important to look at all your options and shop around to make sure you’re getting the best deal and the most appropriate type of car loan for your circumstances. We’ve rounded up details of the most common ones available and some of the things to watch out for:

  • Hire purchase – This finance option involves putting down a deposit on a car (usually around 10%) and then you will be lent money to cover the remaining cost of the car by a car finance provider. This can be one that the car dealer recommends or has partnered with.

    You’ll then make fixed monthly payments to the company who provided the loan. You don’t officially own the car outright until you’ve made the final payment on your agreement. If you miss any payments, then the car may be taken back.

  • PCP (Personal Contract Purchase) – This is a very common type of car finance that has grown in popularity in recent years. You will pay a monthly fee to use the car but once your contract ends you will be required to either return the car, pay a fixed fee to buy the car outright or put the money towards a new vehicle.

    PCP agreements will require a credit check, as well as a deposit. There will be mileage and other restrictions to deal with, too. If you exceed the limits imposed by the contract, you may have to pay a fine.

  • PCH (Personal Contract Hire) – With this kind of car finance, you will make monthly payments to the dealer and in return, you will be able to use the car of your choice. As this is essentially a rental agreement, you will never own the car if you take on this type of finance, but as with other types of car finance, you will still be required to pass a credit check before the dealer will agree to lease the vehicle to you.

    Even though you don’t own the car, you will also be liable for your own insurance costs, and the costs of any repairs should the car be damaged while it is in your care.

  • Personal loan – This type of loan is taken out through your bank or a dedicated loan provider. The money will be sent directly to your bank account and you can then use the amount to pay the value of the car. You’ll repay the loan each month over an agreed period of time.

If you have a poor credit history, you may be excluded from using some, if not all of these options.  Read on to find out how to get a good car with bad credit.

What is bad credit?

Bad credit is the result of actions you’ve taken – or not taken – that have prompted those you’ve borrowed from previously to place negative records on your credit file summarising your behaviour. Usually, these records demonstrate that you’re less likely to repay money you borrow for some reason. Lenders use your credit report when evaluating your applications to them to determine whether or not you are the kind of person they feel they can lend money to.

Bad credit is usually caused by issues like you missing payments or defaulting on a credit agreement, having a County Court Judgement (CCJ) enforced against you, or even an Individual Voluntary Arrangement (IVA) or another informal arrangement to repay your debts that have been reported to Credit Reference Agencies.

You can also be seen as having “bad credit” if you’ve never borrowed before because having no borrowing history for lenders to assess means they have nothing to go on to decide how likely you are to repay what you’ve borrowed.

If you think you may have bad credit, you can check this by reviewing your credit report with any of the major Credit Reference Agencies, or using the free tools they provide. These tools will also give you a credit score or rating. This number interprets your credit history to give you an impression of how lenders may view applications you make to them.

It will take into account both good and bad information in your credit history to help you understand how much of an impact the negative aspects are having on your ability to use the financial products you want.

We’ve looked into this in more detail in our guide that explains what exactly bad credit is, and what steps you can take to repair it.

How to get a vehicle with bad credit

Here, we’ve taken a look at how you can improve your chances of being accepted for a finance deal on a new car:

  • Put down a bigger deposit
  • Check your credit report
  • Look into improving your credit rating
  • Continue to pay off existing credit on time and in full
  • Consider a guarantor loan

1. Offer a bigger deposit

A bigger deposit means you’ll borrow a smaller amount to fund the rest of the car, and may offer some lenders reassurance of your commitment to your obligations and ability to repay.

A deposit of 10% or more should be enough to encourage some lenders to offer you a decent deal, although bear in mind if your credit rating is particularly poor you may not be approved, or if you are, you may be given a loan with a higher interest rate.

2. Take steps to repair your credit history and improve your credit rating

If you know that you have blemishes on your credit report and don’t need to buy a car immediately, then repairing your credit history is the best thing to do to ensure your car finance options are less limited when you’re ready to make your purchase.

Improving your credit rating is about building up a history of making payments on time that demonstrates to lenders you are a reliable borrower. This takes time, patience, and consistent good behaviour in the eyes of lenders.

However, there are some admin tasks you can do quickly that will help you to boost your profile with lenders over time. Enrolling on the electoral register if you aren’t already, closing accounts and ending financial associations on unused joint accounts or joint loans that have been repaid in full are all things that won’t take you long to do but will help your overall credit profile.

Take a look at this guide to get you started.

3. Continue paying off existing debt

If you have a credit card or a loan that you are already making payments on, ensure you continue to make these payments on time and in full to prove that you are trustworthy and reliable when it comes to borrowing money. Many lenders share a history of payments with Credit Reference Agencies, so other lenders may be able to see how you’ve made payments in recent months.

In addition to building a good payment history and demonstrating that you’re a reliable borrower, you’ll also have a smaller amount of outstanding credit when you apply for car finance, which will also be taken into account by lenders when deciding whether to give you the finance.

4. Look into a guarantor loan

Guarantor loans are a popular way for those with bad credit to borrow money as if you fail to make a payment, someone else, who you have appointed, steps in to cover it. A guarantor could be one of your parents, a trusted family member or even a friend.

You can’t simply nominate them, though – they must agree to be your guarantor, complete an application of their own, and be in a strong financial position with no bad credit of their own to be accepted as your guarantor.

This type of loan gives lenders greater reassurance that they will receive back what they lend, so they often offer lower interest rates on guarantor loans. While it may be a cheaper way to borrow, you do need to consider the risk to your relationship with your guarantor if you put them in a position of having to step in and make a payment on your behalf.

Once they have agreed to it they will not be able to change their mind should you lose touch or have a disagreement. Therefore it’s very important that you consider carefully if this kind of loan is right for you, and if you choose to go ahead, who would be the best person to ask to be your guarantor.

5. Check your credit report for mistakes and fraud

If you don’t believe you’ve ever missed payments on a loan, defaulted on a credit agreement or taken another action that could be negatively impacting on your credit report and yet you’re still being declined by car finance providers, then it’s important that you look at your credit report to find out why.

In particular, look carefully for information that isn’t correct, and make sure that all the accounts listed in your name, or jointly with another person, are ones you recognise and use. If you find any accounts that you don’t recognise, then you should report these as fraud straight away – both to the company that placed the record and to the Credit Reference Agency, as well as raising a case with Action Fraud.

Equally, if you spot information that isn’t correct, you should query this with the company that placed the record and also raise it as a dispute with the Credit Reference Agency.

By taking these steps, you could improve your chances of getting the car you need, despite having bad credit. As with any type of loan you apply for, it’s really important you evaluate your finances before you apply for it, to make sure that you can comfortably afford the repayments over the length of the loan term.

It is important not to look at the cost in isolation but think about it alongside your other financial commitments.

Representative 89% APR

Representative Example: Borrowing: £1000 for 18 months, Total Repayable: £1853.43, Total Interest: £853.43, Interest Rate (Variable): 89.9%. Rates between 9.3% APR and 1721% APR – your no-obligation quote and APR will be based on your personal circumstances. Loan term lengths from 3 to 36 months. Subject to lender’s requirements and approval.

Sunny Loans is a registered trading name of Flux Funding Limited who are a credit broker, not a lender. Loan repayment terms are 3-36 month loans.

Warning: Late repayment can cause you serious money problems. For help, go to www.moneyhelper.org.uk.

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We hope this guide has offered guidance for those who need help buying a car with bad credit. If you want to know more about borrowing money and credit scores, take a look at our guides below.