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If you’re worried about getting a car on finance with bad credit, you may be wondering what the lowest credit score you need for car finance is. However, you’ll be pleased to know that car finance with a poor credit score is more accessible than ever! There are more specialist bad credit lenders who are open to offering a finance deal with affordable monthly payments.
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Why is credit score important for car finance?
If you have a bad credit score, you may be looking for no credit check car finance but unfortunately, most lenders do require you to undergo a credit check when you apply. Most lenders now use a soft search credit check though which doesn’t harm your current credit score and is used to check your eligibility for car finance. Lenders use a credit check to see how you’ve handled credit in the past and can be used to set the rate of interest. The lowest car finance rates are usually reserved for those with better credit score as they are usually less of a risk to lend to. If you’re struggling to get approved, you could consider increasing your credit score before you start applying.
Do you need a good credit score to get car finance?
It can be harder to obtain car finance approval with bad credit but it’s not impossible. Many specialist lenders use the affordability method to get you approved rather than focus on your bad credit history. Instead of using your credit score, they instead look at your affordability and if you can afford to pay your car finance back or not. They can do this by requesting bank statements to prove your income and see if you could comfortably afford a car finance deal.
Why might you be refused car finance?
There are a number of reasons that you may be declined car finance. One of the main reasons can be due to your credit. However, in some cases, it may be as simple as the fact you don’t meet the lender criteria. Each individual lender has their own criteria that needs to be met before they can offer you an approval. They also use their own credit scoring scale which is why it’s hard to pinpoint a credit score which is needed for car finance. You may also be refused if you can’t afford to pay back your car finance deal. Lenders need to abide by the rules of responsible lending, and it would be unethical of lenders to offer car finance to someone who could not afford to pay it back.
How to improve your chances of getting a car loan approval
If you’re wanting to get a car on finance but are worried about your bad credit score, there are a few factors you could consider before you start applying.
Increase your credit score
It may seem obvious but having a better credit score can increase your chances of being approved for car finance and it can benefit your financial life in many ways. If you’re missed payments in the past, you should start to make all payment in full and on time. You may also have a low credit score due to high levels of existing debt. Where possible, you should try to clear your debt first to improve your score and also make your deal more manageable.
Choose the right lender
In some cases, you may be applying with a lender who you have no hope of getting approved with. There are many lenders who offer bespoke packages to those with low credit scores. Similarly, if you already have a car on finance but you want to refinance a balloon payment at the end of PCP deal and your score has dropped, you may be knocked back by mainstream or manufacturer lenders. It’s worth shopping a round for the lender that is most suited to your circumstances.
Save for a deposit
Having a deposit for a hire purchase car finance deal can be beneficial. Some lenders may also require a deposit at the start so it’s worth keeping in mind. Where possible, you should try and put down as much as you can as it instils trust with the lender and also reduces your loan amount. A lower loan amount can be more manageable, reduce your monthly payments and help you get approved as you don’t need to borrow as much from the lender.
Prove your affordability
Car finance lenders want to know how you will pay back your car finance deal and with what money. This is why they usually perform an affordability check on you. The easiest ways to do this is through bank statements so it’s worth having all your ducks in a row before you start applying. If you’re self-employed and get paid cash in hand, it can be beneficial to put any money you earn into an UK bank account to prove how much you earn.