The first point to make here is that having a bad credit history is absolutely NOT a showstopper in terms of obtaining finance for a car purchase.
However, the second point to make equally emphatically is that it IS going to be a challenge that will or should change the way you go about looking for a car loan.
The truth about credit histories
Whenever you apply for a car loan of whatever type, the lender will need to try and assess just how much risk they’re taking in lending to you. By ‘risk’ here, we’re speaking of the likelihood that you won’t pay back the loan or will have trouble doing so in accordance with the loan agreement’s terms.
The lenders will look at your credit history in an attempt to measure the risk they’re taking. If your credit history records show that you have previously struggled to repay loans or failed to comply with their terms and conditions, you will be seen as being a particularly high risk or ‘poor credit history case’.
There are certain realities that fall out of this if you’re in such a category:
- there is nothing you can do to ‘fix’ your credit history records overnight. Your position isn’t going to read differently next week;
- for some (but only some), potential lenders, this will mean they won’t progress your application further;
- others may do so but only if they very heavily load their charges to compensate for the extra risks they’re taking, in their view, by advancing you a car loan.
If both of those last two points are unpalatable to you, then you’ll need to adopt a different approach.
Looking for specialist providers of poor credit history car loans
It’s worth keeping in mind that not all car finance providers see things the same way.
Some don’t see all poor credit histories as indicating the same thing. For example, it’s perfectly possible your credit history was damaged by circumstances that you really couldn’t do much about.
That might include:
- a period of illness meaning you had little income;
- a divorce that temporarily disrupted your finances;
- perhaps you were made redundant and struggled to service your loans while looking for a new job.
Situations in the past such as these, don’t really tell a potential lender anything about your ability to repay a loan today. Fortunately, some lenders understand that and as a result, they offer what are sometimes called “bad credit car loans”.
If you know that you have a problem with your credit history files, one thing you perhaps do not want to do is to start making lots of random applications for car finance.
Well, applying to generalist lenders brings with it a high probability that your application will be rejected. Although it’s somewhat controversial, that rejection will also be noted on your credit history records which, in turn, may make them look even less attractive to potential lenders.
So, it might make sense to adopt an approach along the following lines:
- if you don’t know your credit history standing, apply for a copy of your report. This is either free or available for a very small fee;
- if your credit history is shaky, it is probably worth while looking immediately for a specialist provider of car finance who openly welcomes applications for bad credit car loans;
- whatever your credit history standing, be certain the sum you’re looking for is realistic in terms of both the vehicle’s value and your ability to repay the loan on a regular basis.
- Above all else, don’t just give up at the outset! There really are lenders out there who may be able to help.