Best car finance for low credit scores

Car finance is a great way to help spread the cost of owning your next car! Finance agreements allow you to split the cost of your chosen car into affordable monthly payments. More consumers than ever are choosing to get their next car on finance but is car finance accessible for everyone? Having a low credit score can reduce your chances of being accepted for car finance but not all hope is lost! There are certain types of car finance which can be more suited to those with bad credit. Let’s take a look.

What are the causes of bad credit rating?

There are a number of factors which can affect your credit rating and surprisingly it’s not all down to your payment history. Missed or late repayments can lead to a low credit score because your credit score reflects your level of money management. Missed payments can also then lead to more serious financial difficulties such as defaults, CCJs, IVAs and bankruptcy. Your credit file can be affected if you only meet the minimum credit card repayment each month. This is because it can indicate to lenders that you have borrowed above your means and can’t afford to pay it back. Even simple things having incorrect information on your credit file can be negatively impacting your score.

How does credit score affect car finance?

Many car finance lenders will require some sort of car finance credit check before they offer you finance. Many lenders use a soft search credit check which doesn’t harm your credit score and only allows them to take an initial look at some of the details on your credit file. Applying for bad credit car finance can be more difficult to get approved for as you are seen as more of a risk to the lender. Having a low credit score can also affect the rate you are offered. Generally, people with good credit and a strong history of meeting repayments on time can get access to better rates. However, there are a few types of car finance deal which have been specially created for poor credit scores.

Types of car finance for bad credit:

Hire purchase car finance

Hire purchase (HP) car finance can be more accessible to those with low credit scores as the loan is secured against the vehicle. Buying a used car with hire purchase means the lender owns the car throughout the agreement and if you fail to meet your repayment deadline, the lender has the right to take the car away from you. Then at the end of the agreement, the ownership is transferred to the customer and the car is theirs to keep!

Black box car finance

Black box car finance is when a small ‘black box’ is fitted discreetly inside the car and can send the driver a payment reminder. The black box uses telematics to communicate with the lender and can notify the drive a few days before their finance payment is due. This helps to reduce drivers from missing their payments. This type of black box doesn’t track your driving style but instead helps to stay on top of your payments.

Car finance with a guarantor

If you have had trouble in the past meeting your repayments, it can be hard to get someone else to support your application. However, guarantor car finance can be more accessible for people with poor credit. A guarantor car loan is when a friend or family member agrees to make your repayments if you fail to do so. If you miss your payment, your guarantor will have to then make the payment and if you both fail to pay, both of your credit files can be negatively impacted.