Having a car to get from A to B is advantageous for many of us, but the purchasing process is more difficult for some. If you have a low credit score and you’ve struggled to manage your money in the past, getting approved for a car loan can be tricky. This is where car finance bad credit lenders can come in useful. They’re different to most traditional lenders and base their decisions on affordability, not how well you’ve managed your finances in the past. Knowing the total cost of your loan is essential so you can work it into your budget. Below, we’ll take a look at how your credit score impacts interest rates and how you can reduce this additional fee.
Why apply for a car loan?
When buying a new car, taking out a form of finance is common for many of us, and can come with a range of benefits. Car finance solutions make getting a new car more affordable and manageable. Here are a few advantages that come with choosing to utilise car loans to purchase a new vehicle.
- Convenience: Car finance is convenient, it allows you toaccess a car without having money to pay for it outright, which can be a huge help if you’re on a low income, or don’t have savings to fall back on. The most you will need to help you is a small deposit, which makes buying a car more accessible for many.
- Fixed monthly payments: When you apply for car finance, your lender will tell you how much you will need to pay back each month. This tends to be a fixed amount which means you will be able to budget more easily, and manage your money effectively.
- Range of options: There is a range of lenders and types of financeto choose from when it comes to car loans, so you can choose something that suits your financial situation – there is even finance for those of us with bad credit.
- Build credit score: Payn for finance in the form of a car loan can help you to build a credit score. Choosing a loan with repayment terms to suit you that you can afford to pay off monthly means you can show future lenders that you’re trustworthy by boosting your rating.
Can you apply for a car loan with bad credit?
Whilst car finance comes with a range of benefits, it may not be as easy for some of us to be approved as it is for others. If you have a bad credit score, applying for a loan may seem daunting – it shows lenders that you may struggle to pay back the loan, and therefore has an impact on your approval. But you can still benefit from car finance, you just have to choose a lender to suit your needs. This is where car finance for bad credit comes in. Lenders that offer these loans base their decisions on affordability, rather than credit score and consider each applicant’s circumstances so that even with a low credit score, you can still be approved.
How does bad credit impact interest rates?
One of the main factors that bad credit has an impact on is interest rates. The interest rate is an additional cost on top of the total of the loan itself. If your credit score is low, the interest rate will be higher. This is because you will appear as more of a risk to the lender, they will need to increase interest to ensure they get their money back. If you have a good credit score, the lender will see you as a lower-risk borrower, which means you will be able to benefit from better overall car finance deals, and lower monthly repayments.
Tips to reduce interest rates
So, if you are looking for car finance but you have bad credit, what can you do to benefit from lower interest rates? Here are a few tips to help you bring down the costs of your monthly repayments.
- Improve score: Building and improving your credit score will be beneficial when it comes tobeing offered more preferable interest rates. Check your score for discrepancies, make sure you pay your bills on time, and minimise your credit utilisation.
- Save for a deposit: Saving for a deposit not only reduces your monthly payments but can also show lenders that you are willing to put your own money towards the vehicle. It also reduces the overall loan amount, which will result in your lender thinking it’s a lower risk to lend to you, reducing interest rates, therefore reducing the overall cost.