The Impact of Credit Scores on Car Financing
Buying a new car should be exciting, but for some of us, the process is made increasingly difficult as we try to navigate car finance options. If your credit score is not the best – maybe you’ve had trouble paying your debts in the past – it can be almost impossible to get a finance deal that suits your needs. However, there are lenders that offer car finance bad credit, so even if your report is not as good as it could be, you can still benefit from a car to get you from A to B. Read on to find out more about the impact your credit score has on financing a new car.
Why is Your Credit Score Important
Your credit score will follow you throughout your adult life. The higher it is, the better. It’s used to show lenders at a glance how trustworthy you are when it comes to paying back finance that you’ve borrowed in the past and gives them an idea of how you manage your money.
Generally, to be approved for car finance or any type of financial help throughout your life, your credit score needs to be healthy to be in with a chance of being approved. If you’ve struggled to pay back loans in the past, have defaulted, or had many loans to pay off at once, your credit score might be less than impressive – which can cause issues.
How Does it Affect Car Finance
When you apply for car finance, the lender that you choose will look at your credit score to determine whether they think they can lend to you. It can help them to decide whether you are creditworthy and will be able to stick to the terms they set out. Depending on the lender you choose, they may have different requirements that you have to meet.
For example, you must provide evidence of employment and bank statements to help them make their decision. Depending on the type of car you choose and the way that you choose to finance it, whether that’s hire purchase or simply leasing, can all have an impact on whether you’re suitable for finance. Here are a few issues you may come up against.
Reduced Chance of Approval
This seems obvious, but if your credit score shows lenders that you’re not able to pay back loans and you have a bad credit history, you’re less likely to be approved. You’ll find it hard to gain access to the car that you want. To help you boost your approval chances, you should try and improve your credit score by paying off debt and checking for any mistakes on your report. You should also pick a sensibly priced car that you can afford.
Higher Interest Rates
Did you know the less creditworthy you are, the more interest you will be set to pay on your finance options? If you have struggled in the past, your lender is going to need to make sure they will get back the amount you’re borrowing and more.
If they think you may default or struggle with the loan, your interest rates are likely to be higher, increasing the overall price of your finance payments.
Options for Car Finance with Bad Credit
It’s not all doom and gloom. There are options that you can take advantage of if you’ve struggled with bad credit in the past. For example, bad credit car loans are based on affordability rather than your history. So, if your credit score is not as healthy as you’d like it to be, one of these specialist lenders can help.
All you’ll need to do is fill in your application and supply the documents and information they require, like proof of address, proof of monthly income, and bank statements. Lenders will then look at your application, and if you can afford it, you are likely to be approved. This means you can benefit from the ease and convenience of a car without the issue of having to navigate traditional finance options.