What You Should Know About Bad Credit Car Loans

Purchasing a new, or even a used, car usually requires some form of credit. Few of us have the money on hand to pay cash for a car. Those that do have those resources still rely on credit for large purchases like cars and motorbikes because it keeps their credit profile active and helps build a positive credit history.

Still, if your credit history is in a bad way you may find it difficult to qualify for the online loans you need to make your purchase. Conventional lenders tend to shy away from bad credit borrowers, particularly when it comes to big ticket items like cars.

But a bad credit report doesn’t necessarily have to put an end of your search for a ride. Even with an adverse credit history you still have options and opportunities.

Tips on Financing a Car with Bad Credit

Bad credit borrowers start at a disadvantage, particularly when it comes to securing credit for large purchases like a car. Ideally, your first move toward financing your purchase would be to work on boosting your credit rating. Of course this takes time and depending on your need you might not be in a position to postpone your purchase.

Still, there are other ways to increase your financing opportunities. For example, you might consider offering to put forward a deposit when applying for your car loan. Deposits aren’t always required for bad credit loans but they can help to reduce the overall costs. That, in itself, will help reduce the size of your monthly payments and make your car loan more affordable.

Putting forward a deposit also shows potential lenders that you know how to manage your finances and you’re currently earning enough to put money into your savings. These are powerful indicators of your creditworthiness and can help sway a loan approval in your favour.

You should also think about the total cost of the vehicle you want to purchase. Not just the sticker price but the cost of operating the vehicle over time. Fuel, insurance, taxes and MOT all add up and can have an impact on whether or not you can afford the car over a long term. In short, if the operating costs of the car are going to put a strain on your finances it will be difficult to convince a lender that you can afford your loan.

How much would you like to borrow?

Representative Example: Rates from 49.9% APR to max 1333% APR. Minimum loan length is 1 month. Maximum loan length is 36 months. Representative Example: £250 borrowed for 30 days. Total amount repayable is £310.00. Interest charged is £60.00, annual interest rate of 292% (fixed). Representative 669.35% APR (variable).

What is Considered a Bad Credit Rating?

Your credit history is a snapshot of your financial past. It is used to assess your overall credit worthiness and financial stability. Many things can contribute to a poor credit rating. Even a lack of past credit can be counted against your score. This is a problem that tends to impact younger borrowers and new arrivals to the UK who are looking to secure loans or lines of credit.

The most common causes of a bad credit rating include:

  • missed or late payments
  • defaulting on a loan
  • a history of overdrafts
  • failing to appear on the electoral roles
  • county court judgements (CCJs) and bankruptcies

One thing to keep in mind is applying for credit also has a direct impact on your credit score. Every hard credit check costs you points. If you have a history of applying for credit cards and being denied or applying for loans without qualifying, that can will damage your credit score.

How do I Know if My Credit Rating is Bad?

There is no single credit rating metric that is considered bad or poor. In the UK we have three credit reference agencies, each with its own scale –

  • TransUnion – 0-566
  • Experian – 0-720
  • Equifax – 0-438

The lower your score on these scales the worse your credit rating. Points are often easier to lose than they are to recover. However, every on-time payment and every discharged loan improves your credit rating and increases your credit options.

If you are unsure about your current credit rating you can check your score at any time. All UK residents are able to monitor their credit histories free of charge.

What Types of Bad Credit Car Loans are Available?

If you are currently struggling with bad credit and are looking to secure a loan for a new or used car there are a few options to consider. While these loan products are broadly similar they do have some distinct differences.

  • Hire Purchase – This type of financing is much like a conventional loan. The cost of the vehicle is spread across a set period of time. Payment rates are predetermined and at the end of the contract the borrower becomes the owner of the car. Typically, there will be final transaction fees that will need to be paid to complete the contract.
  • Personal Car Loans – A bad credit personal loan allows you to quickly borrow the money you need to complete the purchase of your car. This is an unsecured loan and the borrower owns the car outright. It is important to note that personal loans for bad credit borrowers often include higher interest rates than conventional loans. They also typically have higher loan payments spread over a longer period of time. These all serve to increase the total cost of the loan and, naturally, the total cost of the purchase itself.
  • Guarantor Loans – Borrowers with particularly poor credit scores may find that a guarantor loan is their best option. Guarantor loans require you to have a co-signer to your loan. Their strong credit not only helps to secure the loan but also serves to keep costs down. Guarantor loans can often offer more reasonable interest rates and less burdensome repayment terms.

However, in the event the principle borrower fails to make their payments on time and in full the co-signer (or guarantor) assumes full responsibility for the loan. In most cases guarantors on bad credit loans are family members, friends, or work colleagues.

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What are the Risks of a Bad Credit Car Loan?

Every loan comes with some degree of risk attached. Bad credit loans are no different. The majority of lending products for people with poor credit are designed to serve short-term financial needs. Urgent loans, payday loans and even small personal loans are meant to be repaid in short order.

Car loans for bad credit borrowers are different. You are financing a larger purchase and will be committing to a more expensive loan with longer repayment terms. All bad credit loans are dependent on your current income as well as your predicted expenditures. A sudden unexpected expense could derail your budget, making it more difficult to manage your loan. With or without a guarantor that can put your financial future in jeopardy.

But there is one distinct advantage to securing a bad credit loan for the purchase of a new car. Aside from the obvious access to new and more reliable transportation you have the opportunity to work on your credit score. With every on-time payment you improve your credit rating. Successfully discharging your car loan will go a long way towards rehabilitating your credit history.

What Do I Need to Apply for a Bad Credit Car Loan?

At Bad Credit Loans we aim to keep our application process as quick and easy as possible. If you are currently struggling with bad credit and are looking to secure a car loan you can apply using our online application form. Naturally, we will need to collect some information before we can begin to assess your creditworthiness and fully process your application.

In addition to checking your current credit rating we will need the following information:

  • Date of birth (applicants must be at least 18 years of age)
  • Proof of valid UK residency
  • Current address (you may be asked to confirm your current address with a utility bill or other acceptable paperwork)
  • Current income (including pay dates)
  • Current recurring expenses
  • Proof of an active UK banking account
  • A tally of outstanding debts
  • A valid driving license

Additional information may be needed to complete your application process. It is always advisable to keep yourself available to answer any questions lenders may have. Because car loans typically involve significant sums of money the approval time may take longer than other short-term bad credit loans. We endeavour to make the application approval process as quick and painless as possible.

Repaying Your Bad Credit Car Loan

If you have an adverse credit history and are in the market for a new car a bad credit car loan may be the answer. However, as with all loans it is important to understand your responsibilities as a borrower before committing to any agreement.

Bad credit loans can offer you the financial flexibility you need, but they are not to be entered into lightly. Interest rates may need to be higher than other conventional loans to offset the risks taken by your lender and the repayment terms will be highly structured to help you keep on track. But securing the right bad credit car loan can not only put you behind the wheel of a new ride, it can also start you on your way to building a stronger credit profile.

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Simply select how much you'd like to borrow and for how long:

Representative Example: Rates from 49.9% APR to max 1333% APR. Minimum loan length is 1 month. Maximum loan length is 36 months. Representative Example: £250 borrowed for 30 days. Total amount repayable is £310.00. Interest charged is £60.00, annual interest rate of 292% (fixed). Representative 669.35% APR (variable).