Don’t despair – if you’re in the market for car finance and your credit rating is less than perfect (even significantly less than perfect) there are car finance options available.
Reputable, specialized lenders deal in bad credit car finance. If you can demonstrate that you meet their key lending criteria – basically be showing that your financial situation has turned itself around – then your application has a high chance of approval success.
Protect Your Credit File
Your credit file is an asset, and you should try to protect it. Mainly this can be done by honoring your financial obligations – paying bills on time; not defaulting on loan payments. Contact Equifax to see how easy it is to access your credit file. Note the entries and contact the lodging parties if you believe an error has been made. In the case of unpaid defaults, contact the creditor. Perhaps a payment plan can be entered into, if you don’t have a lump sum at hand to resolve the debt.
Multiple Loan Applications
A word of warning about the ‘shotgun’ approach to car finance. Each application you make generates an enquiry on your credit file. Multiple enquiries erode your credit score, making it harder to get finance. Get professional advice first. Have your situation assessed, determine the loan type that’s right for you, and fill out one application completed in full, with a high chance of approval success. This reduces the likelihood of multiple enquiries building up on your credit file over time.
Banking Conduct
Spend less than you earn. Your banking records will be reviewed as a part of the application process. Don’t allow your account to become overdrawn. Make sure you leave sufficient funds in your account to cover periodic payments. And if you can save some funds – even if only a small, regular amount – this will demonstrate that you in fact have surplus income to devote to loan repayment.
Loans & Credit Cards
Make sure that you are meeting your current loan and credit card repayment obligations. Prospective lenders like to see you taking these obligations seriously. In the case of credit cards, pay more than the minimum required monthly payment.
Income and Employment
Regular income and stable employment history demonstrate overall stability to a potential lender – increasing your chances of loan application approval.
Interest Rate
The interest rate you pay, ultimately, is a reflection of the total risk you as a client represent to the lender. This might seem unfair, but lending is predicated on risk assessment and mitigation. A poor credit history increases the perception of risk in the mind of the lender. This means that you will pay a higher interest rate than someone with an excellent credit history. Thankfully, however, credit history is not the only factor considered in the ultimate risk assessment of any one client, so the rate you pay will be determined by more factors than just your credit history.