Are you planning and saving well to buy your car?
Are you finding arranging a lump sum tricky?
If the answer to these questions is a YES, this blog is for you.
The blog will help you know the ways to own a car without paying any money upfront. Sometimes, bad credit impacts the borrower’s chances of securing car finance. There are bad credit car financing loans to search for in the UK; qualifying the criteria requires persistence.
If you relate to the situation, then by the end of the blog, you will get a solution to it.
Sometimes, one does not feel like or does not share the means to pay the money upfront. Car finance is an ideal option if you wish to spread the cost of a new or a used car.
What does Car Finance Imply?
Car finance is a different loan arrangement available to individuals to choose from according to their requirements and affordability. It allows an individual to divide car payments over 12 months-7 years instead of paying a lump sum to buy a car. It is a loan that covers the car cost.
Individuals explore very bad credit loans from direct lenders with no credit check in the UK. However, getting a low credit score is a serious challenge.
What are the Different Types of Bad Credit Car Financing Loans?
Financing is the most popular way to get a car without worries. However, there is an option to pay in cash and take the car home, split. There are 4 core car financing options:
1. Purchase Contract Purchase (PCP)
Finance brokers, car dealerships, and car supermarkets provide this car finance. It helps you to pay a monthly payment according to the plan. In this, the borrower pays a balloon payment in the end. The balloon payment is for those who wish to buy the car just after the agreement completion.
The monthly payments are based on the price of the car, the interest rates, and the obsoleting or depreciation value. At the end of the agreement, the buyer will be left with 2 ways:
- Option 1- To return the car in good condition to the dealer (it must be in good condition and must cover only the allotted mileage)
- Option 2- Own it immediately by paying the “balloon” payment.
- Option 3- Exchange it for another and begin a new agreement
2. Hire Purchase (HP)
In this, a borrower makes monthly payments on the loan agreement, which is costlier than a PCP agreement. However, in this, you do not have any options but can buy the car outright. If you hate any mileage limits, it could be a better option.
If you have made 50% of the payments and find it challenging to continue the agreement, you can terminate it. It is a better option than personal unsecured loans and offers flexibility for people with bad credit. It is ideal to terminate it rather than hurting your credit score further.
However, you will not get the money back. Qualifying for HP is more accessible than other bad credit car financing loans if you have a bad credit history.
3. Personal Loan
Banks, peer-to-peer lenders, and building societies provide personal loans. This agreement is ideal for new, used cars in private sales. These are unsecured loans available for individuals to buy a car. In this, you do not have to detail anything about the car you wish to buy. The lender provides car loans based on the borrower’s affordability parameter.
In this, you borrow a fixed sum for fixed monthly payments and interest rates.
Interest rates vary according to the amount an individual borrows.
Loans above £15000 generally have low APR. Secured personal loans can be ideal for a bad credit profile. You can use the same car as collateral or other precious belongings to get the loan.
If you wish to end the personal loan agreement early with early repayments, confirm it from the lender. Some car loans have prepayment fees, which can prove higher if you pay without knowing about bad credit.
Here are some benefits of buying a car on personal loans:
There are multiple loan options to choose from. If you share an unstable credit profile, the options may be limited.
- You can negotiate a better deal with the lender based on your circumstances
- Pay a lump sum in advance and cover the rest in repayments
- You own the car here from the beginning, unlike HP (Hire Purchase)
- There are no limits to mileages in this agreement
4. Guarantor Loans
If you lack a stellar credit score to qualify for car finance, guarantor loans are one of the best options. In this loan, a lender approves your appeal for car finance if you could get a guarantor on the loan. A guarantor is someone who is your close acquaintance.
A guarantor’s good credit score can help you fetch the car finance. Non-repayment of the loan can impact the credit score of both the borrower and the guarantor. The guarantor is responsible for making repayments if the borrower defaults.
5. Joint Purchase
In this, 2 people can jointly agree to buy car finance. In this, the typical signers are the family members of the borrower. Both borrower and co-signer are equally responsible for making payments on the loan agreement. If the borrower misses on repayments owing to severe issues- unemployment, death in a family or financial crunch, the co-signer will make the remaining payments—a bad credit impacts both the co-signer and borrower in a car finance deal.
Can You Secure a Car Finance With No Credit Check?
Of course, you can get very bad credit loans in the UK. You can secure one with no credit check. If the lender sees you as an ideal borrower who can manage the repayments and afford them.
However, seeking a car finance deal on a less-than-ideal profile is not ideal and may impact the credit score broadly.
Lenders provide bad credit financing loans after conducting a soft credit check on bad credit borrowers. A soft credit check does not impact a person’s credit score, and it is a part of no credit check loans. No credit implies that a borrower may have CCJs or an IVA (Individual Voluntary Agreement) with credits, which may also mean bankruptcy.
A soft credit check does not imply loan confirmation, and it is just a part of the credit screening and loan approval process.
How do increase Approval Chances for Individuals with Bad Credit scores?
Late payments and too many loans in the credit profile might impact your chances of securing car finance on lousy credit. Here are some ways to improve your chances of securing the loan:
- Try making repayments on previous loans.
- If you have an IVA on your credit profile, contact an IVA practitioner to approve you to get the car finance loan.
- Suppose you have a bankruptcy in your credit profile. It is ideal to wait until it gets off of the credit report.
- Some lenders consider the provider with CCJs. However, it is ideal to seek ways to get them sorted before seeking bad credit car financing options.
Bottom Line
If you still wish to secure bad credit car financing loans, get a guarantor or a co-signer on the loan. It decreases the risk of loans, and you and the lender share security over the loan.
