Even if you’ve been refused car finance in the past, there are things you can do to improve your chances. The world of financing and credit ratings isn’t an easy one to understand, but once you’ve grasped the basics things become much clearer. We’ve outlined them below.
Research your Credit History
You can do this in a matter of minutes online and it’s free. Make sure to use reputable credit checking agencies like Credit Karma, Experian or Equifax. This is the first thing you should do because it gives you an idea of your starting point. The better your credit score, the more likely you are to be approved for car finance. Your current score might be better than you think, and you can go ahead and start applying for a deal. If it’s not quite good enough, there are still poor credit car finance companies that can help you.
If, after discovering a bad credit score, you decide you want to improve it, there are some easy things you can do.
Register to vote
Joining the electoral register improves your credit score because it allows lenders to verify your details. This also helps them filter out people who might be making fraudulent claims. You could be denied by certain lenders if you aren’t registered. A task as simple as that is well worth doing if it means an improved credit score.
Save up for a deposit
Having a deposit makes life a bit easier. You’ll be looked upon more favourably by lenders because the total amount that they give you is lessened because of the deposit. Being able to save a sum of money is also a clear example that you are financially reliable. The larger the deposit you save, the better. Lenders may reduce the interest rate and the total term of the loan will be shorter which could mean you pay less in the long run.
Get guarantor finance
A guarantor promises the lender that they are able to cover your bills, if it turns out you can’t pay them. This person, usually a partner, friend or family member, doesn’t even have to be a homeowner, as was the case in the past. This is a great option for young people who may not have built up much of a credit history and are generally seen to be less trustworthy by lenders. If you’ve been refused in the past, someone you know might be able to get you approved. Becoming a guarantor doesn’t affect a person’s credit rating as only a soft search is performed. Their only risk is that they might have to pay your missed bills.
Similar to this is joint-application finance, which is where two people enter into a car finance agreement. Both parties are responsible for the repayments so it works well with couples. Having two people involved increases the lender’s confidence that the loan will be repaid.
Don’t make lots of applications all at once
Doing so will affect your credit score. Of course, you’ll want to look around for the best deal but be careful that you aren’t having a hard search performed. Too many hard searches on your credit history can harm your score. If you are shopping around, make sure you stick to soft searches. You can always ask what type of search is being performed before you give your consent.
The final piece of advice is the easiest and the hardest to follow. Your credit score is based mainly on your ability to pay back debt. If you have a credit card or have purchased any other products on finance, make sure you pay the bills every single month and you do so on time. Doing that actually improves your score as it’s evidence to lenders that you are reliable and responsible in the face of debts. Getting a credit card is actually a good way of improving your score before you are ready to apply for car finance. Just make sure the monthly repayments are affordable.
Choose a realistic car
You need to choose a deal that’s right for you. Make sure you can afford the deposit (if there is one), the monthly repayments and the interest. It’s best to work out your monthly budget before you contact the finance company so that you can’t be convinced to sign onto a deal that exceeds this budget. Similarly, you should choose a car based on your budget and not the other way around. You might want a Merc but there are plenty of nice cars that are more realistic.