Car finance is incredibly useful when you need a car to get from A to B, but you don’t have a lump sum to pay for it – which will be the case for many of us. There is a range of options to suit your budget and your income, there is even car finance for bad credit for those of us that have struggled to be approved for financial help in the past. Below, we’ll look at financing options for people with bad credit, and how you can improve your chance of getting finance.
Types of car finance
If you think car finance is the best option for you, there are a few options that you could choose to get your hands on the vehicle you’re interested in, even if you don’t have a lump sum to pay for it outright. Here are a few of the most common types of car finance that you can choose from:
- PCP: Personal contract purchase means you pay a deposit, then make monthly payments for the vehicle and finally. at the end of your contract, there will be a lump sum (or balloon payment) to pay to own the car, alternatively, you can change it for a new car, or simply give it back.
- HP: Hire purchase options to allow you to pay a deposit and then make even monthly payments towards your car, unlike PCP, although the monthly repayments may be higher once you’ve made the final payment, you’ll own the vehicle.
- Car loan: You could choose to take out a personal loan to cover the cost of the vehicle to buy it outright, making a payment each month to repay your loan. Personal loans for the use of purchasing a car can be more difficult to obtain with bad credit.
Benefits of car finance
Now you know the types of car finance you could choose; you may wonder whether this is the best option for you. Car finance can benefit a number of people looking to buy a car, especially if you don’t have the funds to pay for it outright – which many of us don’t. Car finance allows you to spread the cost of the car more easily, meaning you can split it into more manageable monthly payments. Paying a little off your car each month means you can fit repayments into your monthly budget and can even help you to boost your credit score if you pay them on time. If you need a car to get from A to B, finance allows you access to new, reliable cars that can make your life so much easier.
Car finance for bad credit
If you have bad credit, and you’ve struggled to make debt repayments in the past, you might be wondering whether you’ll even be approved for car finance. It can be hard for those of us that have low credit scores to be approved for finance, but thankfully there are lenders that can help with bad credit car financing when you need it most. These lenders base their approvals on affordability, rather than your credit score. So, if you have the income to pay a finance agreement each month, and your bank account shows this, you could be approved.
There are a few requirements that you may have to meet and show your lender before your application is approved, like evidence of monthly income, bank statements, and proof of address. Supplying them with the information they need means you can be approved more quickly.
A cheaper deal
If you have bad credit, lenders may have a higher interest for their finance, making it more expensive. There are ways that you can reduce your payments and get a better deal on whichever option you choose. For example, prior to taking out any finance, you should make sure you start paying off existing debt and pay your bills on time to improve your credit score, and show you are creditworthy.
You should also make sure you’re on the electoral roll, to help provide proof of address and make sure you check for any mistakes on your credit score too as this could improve your rating . Another tip would be to increase your deposit amount if you can as this will reduce your monthly repayments.