As a former banker, I know a little bit about dealing with bad credit situations – it is very common. Hardly anyone has a ‘perfect’ score nowadays. Read the below tips I have adapted from a USA based website – they all apply equally well to us in the UK with bad or poor credit!
You can get loan for a new car loan even if you suffer from bad credit. There are a number of dealers and lenders that are willing to finance a car for individuals with troubled credit history. Here are a few tips to help you secure finance for your new car when you have bad credit.
One of the first things you need to do is to try to get pre-approved for car loan. There are a number of dealerships where you can apply online on their website to get pre-approved. Most of the times, the credit application form is on the front page of the website.
It is also important that you get pre-approved from multiple lenders to ensure that you have the choice to go with a lender with the best financing terms.
Check with Your Bank or Credit Union
You may also check with your credit union or your own bank for loan as you already have a history with them. There are also some specialist lenders that deal with sub-prime loans. You should also check with those lenders.
There is a common myth that one should not make too many applications as that may further damage the credit score. However, that is not the truth.
Lenders know that people fill out multiple loan applications to search for best interest rate. The trick is to apply for loans within a 14 day window as all the applications made during that window count as just one enquiry on the credit report.
Look for local
Local finance firms can sometimes offer better deals and advice than the National suppliers. If you live in Leeds for example, a quick search in Google for ‘Car finance Leeds‘ can offer some great local companies. When I used to live in Stockport I used this car finance Stockport firm.
It is important that you start planning for the loan well in advance. The first thing to do is to get your credit report at least three months before you plan to buy the car. This will provide you enough time to take action on any outstanding items on your credit report.
In addition to the credit report, you should also get other documents ready. For instance, a dealership will need your recent pay stub, a utility bill, a driver license as well as personal references.
Buy What You Can Afford
It is important that you buy a car that you can easily afford. There is no benefit of spending extra money on a car when you already have tight credit. So, even if you get approved for a £22000 car, it is not necessary for you to buy it. Instead, look for a £16,000 car that serves your purpose.
Get a Co-signer
In case you are unable to get approved for an auto loan, getting a cosigner might help. However, it is important to keep in mind that a cosigner is legally responsible for repaying the debt in case the borrower defaults on the loan.
You suffer from bad credit but it does not mean that you are at the mercy of dealerships or lenders. You should still shop around for the best price you can get. Also, shop around for lower interest rates.
Car dealerships do not make too much money on sale of new cars as there is a lot of competition. Instead, they want to develop have a long-term relationship so that the buyers can recommend them to their family members and they can sell more cars.
These are some of the tips you need to keep in mind to get approved for an auto loan when you have bad credit.