When it comes to getting a car on finance, you may be wondering what your chances of approval are. Guaranteed car finance approval isn’t a thing and lenders need to put criteria in place before you can get accepted. One of the most common factors that car finance lenders consider is your credit score and ability to make payments on time. If you have a low credit score or have already been refused car finance, you may think a car finance approval is a million miles away. However, there can be ways in which you can increase your chances of getting a car on finance with a low credit score.

How does bad credit affect car finance?

From a lender’s point of view, car finance is all about risk. This is the risk they take when they lend money out to customers to buy a car and if they will pay it back or not. Lenders use a credit check to see what type of borrower you have been in the past and if you can be trusted to make payments on time and in full. A lower credit score usually reflects missed or late payments, high levels of debt or no previous credit history. It can be possible to get accepted for car finance for bad credit but there can be a few ways in which you could increase your chances of approval. People with better credit scores could benefit from easier acceptance rates and lower interest rates which helps to make your car finance deal more affordable.

Ways to increase your chances of getting approved for car finance:

Remember, car finance is never guaranteed and the final approval decision is in the hands of the lender. However, the below factors can help to raise your credit score and increase your chances of getting approved for a bad credit car loan.

1. Check your credit file

The first thing you should do before you apply to finance or lease a car, is to check your credit report. The information listed on your credit report must match your car finance application so it’s important that all your information is accurate and up to date. It’s worth checking if you are financially linked to anyone who has bad credit. If you no longer have any active credit with this person, it’s best to dissociate yourself from them on your credit file as their low score can be dragging yours down too. If you need to make any changes to your credit report or if something doesn’t look right, you can contact the credit referencing agency that provided your credit report to help.

2. Pay bills on time

One of the easiest ways to increase your credit score is to pay all your current bills on time and in full. Meeting these repayment deadlines can help to show good financial responsibility to a potential lender and will start to improve your credit score over time. If you do get accepted for car finance with bad credit, you can use your agreement to better your score and refinance your current loan to better terms or be in a better financial situation when your agreement ends. This is when you can benefit from better rates than the first-time round. If you’re applying for no credit car finance, you could consider building a small credit history first and meeting all your payment deadlines to help show you can manage credit responsibly.

3. Reduce any existing debt you have

When you apply for finance, lenders will also look at the amount of debt you currently have. Having high levels of existing debt can imply that you can’t handle more and are already struggling to keep on top of your finances. Where possible, you should try to clear any existing debt before you take on any more. This will also help to improve your credit score and make your car finance deal more manageable.

4. Save up for a deposit

There are many car finance agreements that don’t require you to put down a deposit but having a deposit can be beneficial to you. From a lender’s point of view, it shows good financial responsibility and it can help to reduce your loan amount. By putting more in for your car finance deal, you can benefit from a smaller, more affordable loan.

5. Choose hire purchase

Hire purchase car finance deals can be suited to those with lower credit. Bad credit may mean that mainstream lenders won’t offer you finance due to the risk involved. However, specialist bad credit lenders can offer hire purchase to help reduce the risk. Hire purchase is a secured loan which means the lender owns the car throughout the agreement until the final ‘option to purchase fee has been paid. Lenders have the ability to use the car as collateral and take it off you if you fail to make your repayments on time and in full. This offers the lender more protection and can make it a good option for those who want to turn their low credit score around.