Car finance deals are incredibly popular right now. Some estimates show that around 90% of all cars currently driving on UK roads are owned as part of a finance deal. A Personal Contract Purchase (PCP) and Hire Purchase (HP) are two varying forms of car finance plans where the cost of the vehicle is paid off over a contract that typically lasts anywhere between 12 to 60 months.
Car finance deals come in all shapes and sizes too. Very few people can afford to purchase a new car outright and finance has proved both a popular and effective way of getting behind the wheel of the latest models.
But if you have a poor credit score you may have found difficulty being able to secure such a plan. If this sounds familiar to you, take encouragement that you are not alone.
Millions of people across the UK struggle with their credit history and car finance plans are one of many situations where people find it difficult to get the backing of a lender who see them as too much of a financial risk to support.
If you have a poor credit rating, you may already understand the difficulty of being approved for finance, but there are options for UK motorists who find themselves in this situation.
Signs You Have Bad Credit
If you are deemed as having ‘bad credit’, this means you have a serial history of debt, missing payments, defaults and credit rejections, which are all documented on your credit report that lenders can access.
Your credit score is a representative value of your credit history and is used by organisations to assess your risk. If you have ‘bad credit’ you will typically have a credit score anywhere below 600, but this will depend on who you use to assess your score.
How to Influence your Credit Score
If you do have a bad credit score you should be first encouraged to make amends if you can and change your own financial wellbeing. Not only is this going to help you find a better finance deal for your car in the long term, but, more importantly, this is going to much better for your health and wellbeing overall.
Some car finance providers will be more welcoming to applicants who have shown recent improvements in their credit score. Give yourself time to recover from any past hardships and make positive changes where you can.
Simple actions like adding yourself to the electoral register under your current address will ensure that lenders will have the correct information on you. Staying in the same job and maintaining a place of residence can help improve your applications for finance too. You should also aim to end any financial relationships that you have with other people who also have bad credit, like any joint credit accounts you hold.
You’ll need to start meeting payment deadlines if you seriously want to change your credit score. These positive changes over time will appear on your credit report and can provide encouragement to some lenders even if you have a poor credit score overall. There are services you can use to acquire a copy of your credit report, this way you know what information lenders will have on.
How Credit Scores Affects Car Finance Plans
The ‘plan’ part of car finance stays the same regardless of your credit score. You can finance a new car with a PCP or a HP deal, which ever best suits your situation. Your credit score is going to affect how much interest you pay across the plan, which in turn affects how much you pay per month.
The higher the credit score the better chance of low interest rates; low credit scores will likely see noticeably higher rates. For example, a person with a good credit rating may be approved for a finance plan with 3.5% interest, while someone who falls into a bad credit bracket is likely to have finance approved with interest rates as high as 20 or 30%. Also keep in mind that if your credit is particularly poor you will be rejected altogether.
Applying for Car Finance with Bad Credit
Whether or not you’ve made positive changes to improve your credit report you may still have bad credit. A lower credit score is likely to limit your options for car finance plans, but some lenders are providing tailored services for those in this situation.
In addition, some lenders and brokers alike can offer potential customers a view of how eligible they are for credit before fully applying. Car group Stoneacre, for instance, allows you to take advantage of its soft search finance check for an evaluation on your eligibility for car finance. A soft search isn’t going to appear on your credit report either and it can possibly save you from being refused on a full application.
Ironically, being declined for credit by multiple lenders can further damage your credit score. If you are applying for car finance at more than one dealership, don’t do so in the hope that at least one is likely to approve your application. Being rejected by multiple lenders is going to show on your credit report. This can effect future applications you make regardless of being accepted from one lender.
Plan your applications ahead of time and focus only on applying where you think you have a good chance of being accepted. Spread these applications over time and as this will be the best way to limit the impact of being rejected.
Be vigilant with any lenders who ‘guarantee car finance’, also. It’s seriously unlikely that they will be able to know that they can guarantee finance to anyone. A guarantee is either a disingenuous marketing trick or a scam. Proceed with caution if you do come across this.