Have you checked your credit score and found it wasn’t as good as you thought it was? If you’re in the market for a new or used car – perhaps you’re starting a new job and need a better way to commute – you may think that a bad credit history means getting behind a new set of wheels is all but impossible.
There are a lot of options for people with bad credit to get a car loan – and possibly improve their credit rating in the process. Here are some tips to buy a car when you have bad credit.
Can you save a deposit first?
This is a big tip – if you can save some kind of deposit for your car – especially a used car – a car loan lender or broker will likely give you some leeway when it comes to approving you for a used car loan, even if you have bad credit.
Though you may have to settle for a higher than usual interest rate, a deposit takes some of the risk burden off the lender. This means you won’t have to borrow as much, either.
Consider consolidating other debts
If you are being crippled by small high-interest debts, you may want to consider debt consolidation.
Consolidating debts means combining your smaller debts into one loan. This means you pay off your credit accounts (good for your credit score over time) in one go and pay off the loan each month until you’ve cleared it for good.
Some debt consolidators offer budgeting assistance or negotiating informal arrangements. Clearing your debts or making a good go of it helps your case for car loan approval and possibly a better interest rate when approaching brokers.
Get bank and employment evidence to show a lender
Showing your recent bank statements and payslips as part of your application helps a lot to get you approved. Demonstrating stable income or long-term employment is usually a prerequisite for most types of loans. If you can also show you’re trying to pay off debts, avoiding “buy now and pay later” services, and living well within your means, lenders will also factor this into your final interest rate offer.
Should I use a guarantor?
A guarantor is someone who trusts you enough to take on your car loan – the whole thing – if you are unable to pay it back yourself. It’s like you “piggyback” on their good credit to gain approval and a normal interest rate. Remember: if you are delinquent on your repayments, it not only tanks your own credit score, but your guarantor’s score too.
See a specialist broker
Don’t just go and see your bank and keep your fingers crossed. There are many specialist lenders that can help you find a bad credit car loan – and understand your unique needs. A bad credit car loan broker can find more competitive loans from their panel of lenders instead of just accepting whatever the bank gives you – if they give you anything at all.
Remember: this advice is general in nature. See a financial adviser before making major credit decisions.