Every individual navigates towards achieving lifestyle goals and wishes to accomplish every goal within the timeline. However, certain goals like gaining a mortgage, buying a car or starting a business take time. When buying a car, credit score proves to be the primary obstacle. Car finance companies prefer stellar credit with well-earnings to support the repayments.

Does that imply you cannot get a car finance quote with a bad credit score? 

If you find yourself when you lack a stellar credit history, you can still finance a car. The blog discusses facts about bad credit and car finance that may help you ride your favourite car.

What should you know about bad credit car finance?

If you are thinking of owning a car but are clueless about having one with a bad credit history, the facts may help. Knowing these facts will help you update your credit profile and prepare finances to increase approval chances. Let's begin!

1)     You cannot apply just after the test

Usually, it requires one to have sufficient driving experience to get car finance. 18+ individuals with recent car driving licenses cannot apply for car finance. It is because, apart from sufficient proof of swift driving, they lack a comprehensive credit history.

 Individuals with no or less credit history struggle to gain car finance because of the unreliability of credit. Unless you can reveal sound financial management with regular earning capacity, you cannot qualify.

2)     Choose a used car instead of a new

One of the important facts about poor credit car finance is- you share more chances to qualify for a used car on finance than a new one. Additionally, you may secure one at low interest rates. It is the best option for first-time riders with limited experience and poor credit history.  Explore used car finance quotes and go with the one that matches your affordability.

3)     Get a guarantor for quick approval

Though there are multiple options to get swift car finance approval, not every option offers low-interest rates. Yes, individuals seeking a car purchase with low credit can benefit from a guarantor. He may also help individuals with low income and an inability to save much. This is because to qualify for car finance, you must provide a deposit- that’s 10% of the car’s cost.  

Not providing one may lead to application rejection. Thus, for car finance with bad credit and no deposit possibility, get a guarantor. A guarantor with a sound credit history and finances may help you with the deposit and further car payments. A guarantor is someone close to you or a family member who may help you with your car purchase dreams.

4)     Competitive interest rates and fees

When you approach any car finance dealer with a low credit score, you witness high-interest rates.  It is competitive in comparison with profiles with good credit. The car finance providers do so to protect the company's and the buyer’s interests. If one provides you with a low-interest loan for a poor credit history, he may ask you to provide a guarantor, deposit or personal guarantee. However, if he does so without asking anything, you may be up for a scam.

Wait until your credit improves for car finance for low-interest rates and repayments. It is one way to fetch better rates individually. Moreover, this timeline grants the opportunity to save enough for the deposit.

5)     Types of finance you can get

Usually, 4 types of car finance exist in the country.  Personal contact purchase, Hire Purchase, Personal Contract Hire, and lease purchase. However, with a bad credit profile, you can only qualify for personal contract purchase and Hire Purchase.

a)     Personal Contract Purchase (PCP)

PCP is an ideal concept for new car aspirants with bad credit. It allows one to consider new car models with the latest specifications without overspending. It requires you to make an initial deposit of 10% and continue the rest payments in monthly instalments.

You need to do so until the loan repayment term. This car finance type grants the option to purchase the vehicle by providing a balloon payment. It is the amount that covers the future car value by the end of the agreement. Alternatively, you can swap the car for the latest model.

The agreement mandates one to maintain mileage limits. It helps the provider calculate the car’s worth and depreciation after the agreement.

b)    Hire purchase (HP)

It works almost similar to a car loan. Under this, you do not need to pay a deposit. However, some providers may ask for one in case of a bad credit history. It's not always necessary. Instead, you can spread the costs of a car until the loan agreement term in monthly instalments. At the end of the agreement, you own the car legally.

You do not need to pay a balloon payment to own a car. You can calculate the total amount you must pay by the agreement end by calculating the – car price and subtracting the deposit. Next, add interest and other agreement costs to it. You will get the sum to pay. However, do not worry about the payments as they remain the same throughout the year. It means you can easily budget for them.

6)     Costs of the agreement may differ

No two persons get the same car finance agreement or total loan costs to pay. This is because the affordability, credit complexities and car preferences differ from buyer to buyer. Thus, there are no standard car finance costs. It depends on the factors below:

• The amount you want to borrow
• The length of the contract or loan term
• Interest rates in the economy
• Deposit size
• Eligibility criteria
• Additional costs

Eligibility criteria and costs may differ from provider to provider. However, they may not differ much. Each provider has its criteria to evaluate the person’s eligibility and affordability.

7)     Non-repayment leads to car possession

Yes, particularly in the Hire purchase agreement, if you cannot pay the dues, the provider may claim the car back.  A borrower must pay at least one-third of the car agreement costs to avoid repossession. If you cannot do so, the provider may claim the car without a court order.

The best thing to do here is discuss finances with your provider. Know the options to reduce the amount or get the car back. Getting an affordable deal may protect your credit score from the worst.

Moreover, analyse the best ways to convince the provider of affordability. Check whether you can clear half the sum. Identify your savings and other financial options to pay the dues. For example, you can borrow money from Ireland's marketplace to support your savings.  It will help you convince the car finance dealer of an affordable finance option.

Bottom line

If seeking the best car finance providers to drive your favourite car, the above tips may help. Before applying, analyse the credit mistakes and report them. Improve your credit profile by paying some debts. It helps get affordable car finance despite a poor credit history. Moreover, if you need car finance quickly, analyse the deposit or a guarantor's feasibility.  It may help you get instant approval with better rates.