For well paid, high flyers with impeccable credit the options available for the financing of a new or used car purchase are almost endless; car dealers, brokers, peer-to-peer lending and high street banks to mention just a few.
However, if you find yourself in a less fortunate position with missed payments, defaults CCJs or maybe even a fulfilled bankruptcy order, the offers of credit can be few and far between, regardless of how much disposable income you have to offer.
So, with this in mind, let’s take look at five fairly simple steps you can take to help improve your chances of being granted an approval for bad credit car finance.
It’s fairly uncommon for major errors to occur on credit reports, but a combination of just two small errors is often all it takes to cause serious harm to an individual’s ability to obtain car finance or any other form of credit.
If you have been rejected by a lender or for whatever reasons you believe you have bad credit, your first step should be to obtain a copy of your credit report. There are three noteworthy credit reference agencies in the UK who all keep their own records: Experian, Equifax and Call Credit, you should obtain a copy from each.
All three credit reference agencies will likely encourage you to sign up for a free trial of between 14 to 30 days, after which a £10 – £20 monthly fee kicks in. Avoid this, instead request a one off copy which will set you back just £2, they have a legal obligation to supply this at least once a year upon request.
Once you have a copy, check for incorrectly recorded transactions such as missed payments, defaults, CCJs or even fraud warnings. You can dispute inaccuracies on your credit report by contacting the organisation responsible for the record in question, usually a bank, lender or other financial institution. As a plan B you can contact the credit reference agency directly with your concerns.
Having undertaken these two steps and failing to reach a satisfactory outcome to your dispute you have the option of plan C, which involves referring your case to the Information Commissioners Office for review.
You may have seen the headline ‘payday loans could cost you a mortgage’ well this is often also the case with new overdraft applications; so suggesting the same is the case with vehicle finance would be a fair conclusion to reach. I put the question to a number of leading vehicle finance broker brokers, none of which came back to me.
A likely reason behind this is the fact that payday loans are often used as a last resort when an individual is in need of some urgent funds and all other means: overdraft, credit card advance and lending from family and friends have been exhausted.
It’s inevitable that this type of finance will be interpreted as a sign of an immediate financial shortfall, multiple payday loans could even be seen as a brewing financial meltdown.
You may ask how a potential broker, dealer or lender would even know if you we’re using such a service, well it will likely show up on your credit report. Some specialist bad credit lenders also ask applicants to supply two to six months worth of bank statements.
Although many car finance brokers push slogans such as ‘no deposit required’, some of the specialist bad credit finance lenders they work with will only consider applications form individuals who are able to pay a deposit.
However, there are several benefits to paying a sizable chunk up front; the most notable one is the fact that it will reduce the total amount of interest payable, which could account to a saving of hundreds of pounds.
Some lenders will only allow a customer with bad credit to borrow an amount that accounts to a monthly repayment of no more than a third of their monthly disposable income. Paying a deposit will reduce your monthly repayments and/or the agreement length; perhaps enabling you to buy the car you really want rather than having to settle for a cheaper less desirable car.
It the past car finance brokers and dealers would have carried out multiple credit checks with various different lenders in order to gain an approval, and indeed some still do.
The problem with this is the potential impact on your credit score, just one credit search can lower your score, and multiple credit searches with no approval could prevent you from being granted an approval full stop.
The good news is many leading brokers now carry out what’s known as a ‘soft search’, this is made possible by the introduction of credit risk navigation technology. Enabling brokers, dealers and even lenders to check data such as the electoral records and bankruptcy register, it enables an applicant to be matched to a specific finance product before a full credit check is carried out.
So, whether you choose a broker, dealer or deal direct with a lender, ask them to carry out a ‘soft search’ before you complete a full application.
Unless you’ve actually had a payment box fitted to your car, you probably haven’t come across such a thing.
Sometimes referred to as ‘pay as you go car finance’, the payment box enables the lender to disable a vehicle in cases of none payment and in extreme cases of multiple missed payments the lender can also track and recover the vehicle.
Such technology helps specialist bad credit car finance lenders to mitigate risk and gives them the confidence to lend their capital to higher risk individuals than would have previously been considered. So, even with the worst credit in the world, provided you can demonstrate your ability to comfortably meet the monthly repayments, there’s a good chance you will be granted an approval. Brokers specialising in this type of vehicle finance include, Clearway, who have been heavily involved in the bad credit car finance market for some years now.
However, it’s worth bearing in mind that APRs will often be higher.