Monday 24th August 2015
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If you have poor credit and/or lots of debts already it may be inconceivable that you would want to take on another debt such as a car loan.  However, some people may have to because they need it for work, possibly for commuting, or if they work as mini cab drivers or driver instructors.

One of the first things you should do is check your credit score using Experian or another site.  Visit Money Supermarket to find out more.

How to buy a car with bad credit

Check that all the information listed is correct as any errors could affect your ability to get a loan. Any inaccuracies should be reported, acted on and rectified.  If there are any debts outstanding that you can pay off do it straightaway and make sure the report is updated.  Reduce the number of ‘black marks’ as much as you can.  You may have to wait some weeks or even months for the report to be updated and for your credit score to improve. The next step is to look around at the different financing options and assess whether you can realistically pay a deposit and make monthly repayments.

Car loan

There are some specialist sites in the market that can support you with car loans.

The Car Finance Company specialises in providing finance to people with poor credit who are looking to buy a car.  They claim to be ethical and responsible.  Their site has a useful calculator which helps you to work out what the monthly repayments would be on a loan of a certain sum over a specific period of time.  You can then work out if you can afford the repayments or not comparing different amounts and repayment periods.  Their system includes a reminder system to help people pay on time so that they can work towards establishing a positive credit history and improve their credit score.

The Car Loan Warehouse also help people with bad credit scores or who’ve been previously refused credit to find solutions to gain impartial advice and get a car loan approved through their lenders. Some banks and other high street lenders will refuse on the basis of past missed payments.  These companies claim to take a more balanced and overall view; looking at an applicant’s current individual circumstances including income and expenditure.  In some circumstances involving CCJ and Individual Voluntary Agreements you may still be able to get a loan through these companies.

Some lenders may give you a reasonable deal even if you have a bad financial history as a new car has more value and therefore offers more collateral to be reclaimed if the buyer defaults on their payments. A new car should also be more reliable than old cars which often incur costly repairs and so the buyer should be able to keep up with the payments.  Remember that if you default on HP payments the car can be repossessed and you cannot sell the car until all repayments have been made.

It can help dealers to build a relationship with the buyer in several ways:

  • The buyer can recommend the dealership to others and give the company good online reviews and ratings.
  • The buyer may use the maintenance department for servicing their car.
  • Once the car is paid for it could be sold back to the dealership and the buyer might buy another newer make and/or model.

When going to a dealership bring along proof of regular income (pay slips), confirmation of your identity and address and any other documentation that they request.  Make sure you have done  your homework first and be realistic about what you need. If you’re told that you can borrow up to £15,000 that doesn’t mean you have to spend £15,000 on a car.  Look around and find the cheapest model that meets your needs and forget any ‘nice to haves’.  Stay at the lower end. Remember you still have to budget for road tax, insurance, servicing, MOT and any repairs.  Don’t move onto another bigger or nicer car, stick out the loan and pay off the first car before trading up.

Be careful with your enquiries as sometimes making multiple applications can further affect your credit score.  Check with lenders first if this is the case. Clearly, you are at a disadvantage as some sharks may sense your desperation and try to offer you ludicrously high interest rates.  Get lots of quotes, compare and contrast the different interest rates and make sure that the lenders are approved by the Office of Fair Trading.

Leasing agreements are an increasingly popular way of renting a car over the long term.  You pay a monthly fee and the period and number of miles are agreed on.  This way you get to buy a brand new car without paying for it upfront.  There are two forms of this.  Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).  So with PCH you can hire a new car every few years without having to purchase it at the end of the agreement.  Another benefit is that you don’t have to worry about depreciation.  Alternatively, if you do want to buy the car at the end of the agreement you can do so with the PCP.

Whatever you chose always remember the gold rule ‘shop around’ and get the best deal for you.