Car finance can be tricky, but there are plenty of guides out there that can point you in the right direction. From understanding the types of finance on offer, to how to get the best deal, there’s plenty of information out there.
One of our best tips for navigating car finance is to see it like any other financial agreement you enter into. A certain amount of money is borrowed in order to make a purchase, and repayments are made at an agreed amount for a particular duration.
There are many things which can harm your ability to enter into financial agreements, the most common being a poor credit score. Credit scores follow you around no matter where you go; think of them as your personal footprint on the financial world. Every penny you’ve borrowed and paid back contributes to your credit score. Now, it’s important to state that it’s not necessarily an issue to keep borrowing money, as long as you’re seen to be paying it back in a timely fashion. Of course, it’s important not to borrow beyond your means as then you may fall into the category for bad credit. Which is what may have brought you here today.
What does it mean to have bad credit?
A bad credit score means that you are potentially borrowing beyond your means. It could be that you’re regularly making payments late, that you’ve borrowed a lot of money in quick succession, or that you’ve landed yourself a red financial mark against your name in the past, such as a CCJ (county court judgement) or IVA (individual voluntary agreement).
Fortunately having bad credit isn’t the end of your financial endeavours. Each lender will have their own parameters when it comes to financial agreements. Varying companies and varying thresholds mean there isn’t necessarily a one size fits all. This is good for you if you have bad credit because it simply means you need to find the right company that’s willing to loan you the money needed for your car.
Bad credit means you may be able to borrow less, or potentially for a shorter amount of time. But it doesn’t prevent you from borrowing. That’s what you need to consider when it comes to looking at getting a second car.
Financing two cars with bad credit
In some circumstances you may find that you require two vehicles. It might be because your partner is incapable of financing a car. It might be required so that you have a vehicle for work. It could just be because you want to have a weekend campervan to go on adventures with. Whatever your reason is, it’s important to treat your second agreement just like your first.
The first thing to take into consideration is how much you can afford to pay each month on your repayments. Just like any other financial agreement, you want to make sure you have the ability to repay it. Ensuring you can pay back whatever you borrow should always be your first priority. It’s the only way to prevent your bad credit score from getting any worse and still ending up with what you want. It’s also the first thing you should say to the car salesperson – that way they know what your first priority is.
Selecting the right financial agreement
There are two main types of car financial agreements to enter into. It doesn’t matter what your first car’s financial agreement is, your second agreement is separate and should be treated as such. You wouldn’t compare your mortgage to your phone contract so try not to compare your two car finance agreements either. They don’t have to be the same type, have the same interest rates, or have the same monthly repayments.
One of the most common types of car finance agreements is a PCP (personal contract purchase). This type of agreement is popular with people who drive high mileage each year and have a minimum deposit to put down on a car. PCP agreements are designed to have low monthly repayments which could be ideal if your first car finance agreement leaves you with a less than desirable pot of money to play with.
PCP agreements have small monthly repayments because at the end of them, you don’t own the car. That means that you’re not paying off the full amount. Instead you are given the option to pay off a large lump sum, usually in the thousands, in order to own the car. The alternative is to return the car and enter into a new agreement which is ideal if you put a lot of miles on the car.
The other most common type of financial agreement is a HP (hire purchase). The monthly repayments on a hire purchase are slightly more than a PCP, however the bonus is that you get to keep the car at the end of this. If you’re not putting many miles on this second car, it’s a great option. Perhaps it’s the weekend car you take on your adventures around the country a couple of times a year.
Owning the car at the end of your agreement means you can stop paying a monthly instalment, potentially then allowing you to finance a third car. However, as we said, a hire purchase agreement tends to have monthly instalments that are significantly higher than a PCP, so make sure you stick to the number one rule. Ensure that it’s affordable.
How to finance two cars with bad credit
When you finance two cars with bad credit, it’s important to treat them just like any other loan agreement. If it’s affordable and a lender will loan you the money, then it’s doable. Just make sure it’s what you need.
Perhaps, when you have financed the second car, it’s time to work on boosting that credit score. You can do this by paying off other loans, making your repayments on time and even signing the electoral roll. Getting a good credit score again should certainly be your first priority.
