The freedom you gain when you learn to drive is great, particularly for young people. The added flexibility in your lifestyle, the increased employment opportunities and general broadening of your horizons is invaluable. However, what all drivers have come to learn is that you can either have money, or you can have a car.
Expensive enough on their own, there’s the constant cost of insurance, fuel and the inevitable garage bill when something goes wrong. To keep costs down in the long run, it’s best to buy a half decent car. However, with poor credit, securing the funds to get a good car can be trickier than you’d like it to be.
Thankfully, it’s not an impossible task, with an increasing number of companies offering car loans for those with bad credit.
Throughout this article we take a look at some of the most frequently asked questions and some of the companies that offer these loans, as well as the positives and negatives associated with them.
Car finance for those with bad credit is fairly self explanatory. These are specific finance packages offered to those with bad credit to help get them on the road in a vehicle that’s actually going to complete the 10 mile journey between A and B.
With some finance providers now dealing exclusively to those on benefits, low income, housewives, students, the self employed and those with CCJs with no deposit, car finance is becoming much easier to access than it has been previously.
Where these loans are at higher rates of interest, they are flexible in their repayment plans and allow you to repay over long time periods. Car Credit CardHowever, just because it is readily available doesn’t make it easy to get.
There is unfortunately no such thing as guaranteed finance anymore!
You still need to go through the usually credit file pruning as you would when applying for anything else. Furthermore, you need to be able to show that you can make the repayments in your current financial condition. You should also be prepared to pay more than the good credit customers. As I’ve said countless times before, high interest and high charges are the price that we pay for having poor credit. With bad credit loans, you can be expecting to be paying an APR of over 30%, so having a deposit saved is a good plan. Because of the higher interest rates, it’s important to borrow a sensible amount rather than the cost of a top of the range, brand new car.
Loans for bad credit are on the up when it comes to popularity. This has been reflected when it comes to car finance, with many lenders offering specific plans for bad credit, as well as loan companies that deal exclusively with bad credit borrowers. We’ve highlighted a few companies that may be worth giving your custom below:
1. Car Loan Warehouse (online) - The Car Loan Warehouse are an online loans company that deal exclusive with customers with bad credit ratings. Their approval process is based on your ability to repay the installments with your current financial situation rather than your credit history. Where it still plays a part, the weighting is more in favour of current earnings. They also offer a cost free application fee.
2. Stoneacre Motors - Stoneacre have access to a wide range of lenders, meaning your chance of approval are automatically increased due to different lenders scoring credit differently. They offer car loans to those with CCJs, limited credit history and those with defaults on their loans. They have an instant decision, on loans with 37%APR and 5 year repayment plans.
3. VolksWagen - It is unusual for a high street dealer to offer finance for bad credit, but out of all the dealers, VW seem to be the most lenient. With plans for younger drivers whose credit history may be shorter and poorer than most, VW hit a real niche in the market. As a customer myself, I can only recommend their finance packages.
4. Midland Credit - Midland Credit are another company that deal exclusively with those who have poor credit. Open to applicants with CCJs, defaults, previous bankruptcy, those with defaults on loans and the self employed, Midland credit has great flexibility. Combine this flexibility with a 1 hour approval turnaround time and you may have the company for you.
Unfortunately in this day and age, there is no such thing as guaranteed credit, not even for cars. This is somewhat confusing, as many garages now try and draw you in with their “100% Finance Approval Guarantees” or their “Guaranteed Credit Services”.
Basically, these companies are trying to suck you in to their services, and will usually let you down after gaining your contact details to then spam you with their hot deals and discount savings junk mail. Getting credit for car payments awarded once again boils down to the same fundamental principles as any other kind of credit.
As per usual, when you apply for car finance, your approval comes down to the same risk vs profit tradeoff on the lenders side. Would you lend money to someone who could simply not afford to pay you back? Well it’s no different for a lender. If they see you as too high risk a client, they will decline your finance application, regardless of your current financial situation. Once again we would reiterate following the simple steps we highlight in another of our informational articles on this site, detailing how you can give your credit file a fine tuning to stand the best chance of being awarded credit before taking the plunge and aiming for car finance.
Another way to increase your approval chances are to borrow a reasonable amount, so not trying to drive a brand spanking new Mercedes away from the dealership, and having some kind of deposit available to pay on the day.
The advantages of securing a loan for a car when you have bad credit are fairly obvious. Cars are almost a necessity today, they expand your horizons, make finding work easier should you ever fall out of it, and allow more flexibility in your life.
They are expensive machines, and you need to know that it’s going to get you from A to B, so you need one thats half decent. Half decent cars have at least a four figure price tag, which is hard to stump up up front, so car finance schemes help us here.
They give you quick access to a reasonable vehicle and break your payments down into affordable monthly installments over flexible time periods of 1 to 5 years.
Also, as with any kind of credit, being able to manage the monthly repayments of your car, is only going to have a positive impact on your credit score, which quite frankly could do with some TLC. Car finance gives you the opportunity to prove to bigger lenders that you can manage your money sustainably and pay bills on time, which reduces the risk of them lending to you, making securing future credit a much easier process.
Once again, credit is littered with disadvantages when it is not managed sensibly. If you miss repayments not only are you open to heftier charges that with normal car finance plans, you credit score is also going to take a beating. When you miss a payment, it’s recorded on your credit file, meaning that future lenders can see this information. Missing payments increases risk of lending in the eyes of the lender, meaning future credit will be much harder to come by.
As well as higher charges, interest on a bad credit loan regardless of what it is for is going to be much higher than a standard plan. For example, having built up my own credit score, I have secured a car loan at a 6.7% APR, now considering the amount I’ve borrowed, that’s still a heft chunk of interest a year over my 4 year repayment plan.
If I had poor credit at the time of applying, I could have been subject to an APR as high as 37% over 5 years. Because of the higher interest, you need to borrow a sensible rather than extortionate amount, and be sure that the plan you are signing up for is the best fit and best value for you personally.
When applying for car finance, regardless of your credit history, there are a few pieces of information that you will need to have to hand.
First of all, you’ll need a copy of your birth certificate or your passport, to confirm your identity. This is as a security measure that you aren’t trying to gain credit in someone else's name and someone else isn’t getting any in your name.
Secondly, you’ll need a copy of your driver’s license, as well as the paper counterpart. This shows that not only are you licensed to drive the vehicle away from the dealership, you also have a valid UK address. Your credit applications can be traced to your address, so this is a key part of the credit check, so it’s important that this address is where all of your bills and other credit accounts are registered.
Last of all, particularly for bad credit applications, you’ll need some kind of proof of income, be it a bank statement or payslip.
This shows that you are able to make the repayments in your current financial state, thus lowering the risk of lending. Bad credit car loans tend to only take into account your current earnings rather than your credit history.