Why Finance a Car with bad credit?
Why Should I Get Car Finance?
A car isn’t just a metal box with four wheels; a car is Freedom.
Freedom to take your kids to the beach, freedom to take your goods to market, freedom to do what you want, where you want, when you want to.
Everybody should be able to afford a car.
But do you have £14,000 sitting in your bank account? £20,000? £30,000? No?
You’re not alone.
According to the Financing and Leasing Association, 91% of private car buyers in the UK now buy or lease their cars on finance. That’s a huge number and it’s not difficult to see why.
A car is the second most expensive purchase you’re ever likely to make. With food and housing costs constantly rising and wages not always keeping pace with the increase, it’s becoming increasingly difficult to save the money needed to buy a car with cash, and you can’t always wait.
When Jim passed his test, he planned to save for his first car. He put a little away, month by month, for a year, working hard and keeping his finances clean. And then came some fantastic news: Jim was going to be a Dad.
But after the joy and celebration came the realisation: that money was going to be needed elsewhere and the family was going to have to have a car sooner rather than later.
Sound familiar?
Things change. Needs change.
And when you need a car, you need a car. That’s where Financing really comes to the rescue.
- Hire Purchase
- PCP
- Lease
With a really good PCP or Hire Purchase, you could have a car on your driveway tomorrow without spending a fortune every single month to put it there. And if you’re not so fussed about owning that car, a Lease could put it there for much less than you thought.
Flexibility is the real strength of financing. There are so many options available – from Hire Purchase to PCP to Bank Loans To Leasing, there has never been a better set of options to get you behind the wheel and they all come with unique benefits.
A Lease is usually the cheapest monthly way to drive off a forecourt and it’s perfect for business owners and company cars – but you don’t own the car in the end.
A PCP allows you to borrow part of the value of the car, taking the monthly payments way down. At the end of your contract you can buy the rest of the car, swap it for a new one or just hand it back.
Hire Purchase is your simplest option and you always know where you stand: put down a deposit, pay for the rest of the car every month for a few years and you get a car at the end of it. This may not be the cheapest monthly option but you’ll save the most money overall – and you’ll come out of it owning the car.
There are even car finance options for people with a rocky credit score or bad credit.
You don’t need a mattress filled with cash to get the car you need today. Just visit us at ChooseMyCar and let’s see what great deals we can offer you.
The first question should be “Do you need finance at all?”
92% of drivers in the UK now purchase or lease their cars using some form finance. That leaves only 8% of owners paying cash.
A new driver in the early part of their careers with, possibly, a young family to scootch around? We’ll go out on a limb here and say that buying a new or second hand car with cash is probably going to be a rare choice.
But what’s best for financing a new car depends on you. Let’s get the big question out of the way first:
Can you afford a good deposit?
The higher the deposit you place on your car, the lower your monthly payments will be and the less you’re going to pay overall. It has always been thus.
Our new driver will probably be able to find enough for a deposit but it may not cover a huge amount of the car. But if that driver hasn’t yet scraped enough together from savings, a Personal Loan from a bank might be a helpful option, allowing you to pay for all or most of the vehicle outright without a deposit. It’s also the cheapest option, overall.
The problem with this plan comes down to the monthly cost – which can be higher than other options. Personal loans are also heavily impacted by your Credit Score. A particularly young driver might find these to be difficult obstacles to overcome as it takes a while for you to build a credit score and your income may not yet have grown enough to cover large repayments.
Illustration of a pile of road signs and a car
Which Car Finance Options is the Best for People with Bad Credit, though?
If you’ve a poor credit history and a weak credit score, finding finance to buy a car might seem like a daunting task.
But is it really as tough as it seems and what are your options if you really need a new car?
There are a huge number of reasons that your credit score isn’t ideal. You may never have borrowed in the past, for example. Surprisingly, this can produce a poor score even if it’s always seemed the sensible thing to do. Without any credit in your history, lenders can’t see how reliable you are at paying it back.
A single bad year, loss of work or illness can also place a big dent on your score if it led to a bounced payment at some point. Having a poor credit score is nothing to feel bad about – sometimes it just happens and it’s not the end of the world.
But even a person with a poor Credit Score needs a car at some point. Circumstances change.
The good news is that a poor credit score doesn’t mean you can’t finance a new car – there are many options to help you get the car you need.
It does make things a little more complicated, though.
So what are your options and what are the pros and cons of each?
Well your first choice is probably the most familiar:
Hire Purchase
is the simplest way of financing a car from a dealership and probably the first you’ll be offered. And it’s kinder to people with poor credit histories than you might think.
What is it?
Place a Deposit and pay off the full value of the car in instalments until the car is paid for. The car is not yours until the final payment is made but once that payment is made, the car is yours to keep.
Why Is It Good for Bad Credit?
Because the loan is secured against the car, the Credit Lender has the ability to take the car back if you can’t pay. They can then recoup some of their costs by selling the car elsewhere, making your loan a less risky proposition. The lower the risk, the more likely they’ll agree to finance the deal.
What are the Risks?
Your car is the risk: if you miss payments and they take the car then you’ve paid out money with nothing to show for it in the end.
While Hire Purchase is friendlier to those with Bad Credit, they won’t lend to everyone. If your rating is particularly poor they could still refuse to give you a Finance deal on a new car.
Repayments usually cover the entire value of the car, making monthly payments a little more expensive, though the overall cost of the car will be less than with other options.
Guarantor Loans
If a Lender doesn’t think you’re reliable enough to offer you a Hire Purchase deal then this may be the option they point you towards. It provides the security they need to lend, even if you don’t have a Credit Score to back it up.
What is it?
Find a person over the age of 21 with a good Credit Score to be your Guarantor. If that person says yes, they can sign on to guarantee your repayments if you miss one or more, meaning the Lender still gets paid until you’re back on your feet.
Why Is It Good for Bad Credit?
Trust is the key. Your guarantor needs to trust that you’ll keep up repayments and you need to trust that they can cover the cost if you can’t. If that trust is there then a Guarantor Loan can break through the barriers that stop you from getting Credit.
What are the Risks?
The risks are mainly with your Guarantor. While their Credit Score is safe while you make your payments it could be hurt if you miss one.
Your Guarantor is also liable for all failed repayments and they can’t back out or change their minds. If they run out of funds then debt agencies may chase them for the money.