You’ve finally chosen your car 🚘 after what seems like a lifetime of perusing through whatever used car sales websites you’ve taken to. Or maybe you went for the offline approach and did a day of trawling around garages. Whichever way you went about it, if you’ve picked your vehicle, great news.
Now for the harder part – financing it. Unless you’ve got the cash to put in up front, you’ll need some sort of car finance and if you’re one of the millions of Brits in the UK struggling with bar credit, then might seem like an overwhelming obstacle.
We’ve got some good news and some not-so-good news.
The Good News and the Bad News
The good news is that there are bad credit car finance options out there. Yes, really.
The bad news? Bad credit finance of any sort normally costs more than finance for those with better credit scores. We’re not a fan of that news either, but there’s a good reason for it:
A poor credit score makes you a higher risk on paper to the lender. There’s a higher chance of you not repaying it, based on your credit history, than would be the case for someone with a better credit record. This makes you a bigger risk and makes credit pricier for you. It also means that credit may simply not be available to you with some companies, so you may need to seek out specialist companies.
Paying for a Used Car When You’ve got Bad Credit
Ok, so we’re going to give you some options for financing a used car when you don’t have a great credit history. But first, the boring (but absolutely essential) bit:
We are not qualified financial advisers. What that means, in plain English, is that we can share our research and thoughts with you. But before you make any decision that will affect your finances now or in the future, you should go and seek professional advice.
Ok, that’s the lecture, now let’s look at the options.
The way we see it, when you’re looking to fund a used car purchase, you have a couple of options:
- Borrow from family or friends
- Take out a loan from a bank of loans company
- Take finance from a specialist car finance company (who’ll often secure the loan against the vehicle itself – more on that later)
Let’s take a look at the pros and cons of each of those options.
Borrowing from Friends and Family
- Generally doesn’t come with interest
- Typically wouldn’t come with a credit check
- Often an easier process than applying formally for a loan
- Money and friends (or family) is an awkward mix. There’s the asking. And then there’s the whole fear of missing a payment and someone close to you knowing more than you might feel comfortable with about your personal finances
- Fail to make a payment and you may not lose your car, but you might lose a friend or family member. It can just be awkward
A Loan from the Bank or Other Lender vs Bad Credit Car Finance
The main difference between taking an unsecured loan from the bank or another lender vs going to a car finance company is this:
With a standard loan, you take the loan out and spend it on what you wish. An unsecured loan won’t be secured against your car. In other words, if you miss a payment, your vehicle isn’t under threat.
With a car finance company, they often pay the dealer directly and failure to repay the finance each month could result in your car being seized. With car finance companies, the “loan” is often secured against the vehicle itself.
If you take out car finance, you don’t own the car. You’re technically sort of leasing it from the finance company.
Many car finance companies will enable you to make a final nominal payment at the end of the contract once all is paid off that makes the vehicle yours.
Finding Bad Credit Car Finance Companies
So here’s the situation. We do not have relationships or sponsorship agreements with any car finance companies (bad credit or otherwise). So these tips are completely impartial (yay).
We’d suggest that a good starting point is to assess just how bad your credit really is. The last thing you want to be doing it blindly submitting enquiries to scores and scores of companies. Applying for multiple loans in a short space of time can actually have a negative impact on your rating.
- You can check your credit score for free at ClearScore
Once you know what your credit score situation actually is, you can start to find companies that accept people fitting your profile.
- Don’t just take the first company you find
- Use a range of comparison sites to find out what options might exist
- If you’re not sure whether a company would accept you, it might be worth contacting the company directly to ask if they can offer and additional information for you
Keep Costs to a Minimum
Car finance for those with bad credit is likely to be more expensive than credit for those with better ratings. As such, it makes sense to try and keep your required loan to a minimum.
Try and keep your costs and thus required finance levels to a minimum. This means you can probably pay back your finance much quicker.
Make Payments on Time!
Securing car finance means that failing to repay your loan puts your car at threat of being seized.
But making regular repayments against any credit line, including car finance, has the potential to increase your rating.
Quidco or Other Cashback
We wouldn’t suggest that you make cashback sites your core reason for taking finance from any given company. But at the time of writing (September 2019) there’s the potential to earn up to £180 in cashback from various providers.