Having defaults on your credit file doesn't mean you're locked out of getting car finance. It does mean, however, that you may have to take some steps to improve your chances. That's because mainstream lenders are likely to see you as a risky borrower.
Whether you apply directly (a hard search) or go through an eligibility checker (a soft search), lenders will naturally look at any defaults.
They'll consider:
- How many defaults you have
- How old they are
- Whether they've been settled
For some lenders, the mere presence of defaults on your credit file will be enough to decide against lending you money. But specialist
bad-credit car finance brokers will place more weight on your current income and affordability, as well as your credit history since the defaults.
That means an applicant with a recent default but a stable income may get approved. Meanwhile, someone with a clean bill of credit health but no current stable income may be disapproved.
It's also worth noting that the older the defaults are, the less likely they are to matter.
Remember: a car finance lender's priority is to get their money back. So, you may need to pay a higher interest rate or put down a larger deposit if you apply for finance with defaults on your file.
You can also take steps to improve your chances. Here are four ways to do it.
How to improve your chances of getting car finance with defaults on your credit file
1. Put down a larger deposit
Save for a larger deposit, if possible. A 10% to 20% deposit, for instance, will reassure the lender that you're not such a risky borrower, despite the defaults on your credit file.
2. Get on the electoral roll
A simpler – and cheaper – way to improve your chances is to make sure you're on the electoral roll. This is used by lenders to validate your address and is another reassurance that you're a safe pair of hands to lend to.
3. Don't miss payments
In the months leading up to a credit application, you should do all you can to keep up with all your credit card payments. If you use credit regularly, lenders are likely to think you're struggling for cash.
4. Wait for the right time to apply
Finally, it's worth applying only when there's a good chance of approval. This is because multiple applications in a short period are a red flag to lenders.
The best way to know your chances is to go through a car finance broker that uses soft-search technology, which doesn't affect your credit score. If you have defaults on your credit file, this will be a specialist bad-credit car finance broker.
What are the main kinds of car finance?
There are four main kinds of car finance:
- Hire purchase
- Personal contract purchase
- A personal loan
- Personal contract hire
Hire purchase (HP)
Hire purchase involves paying a deposit, typically around 10% of the overall amount, followed by fixed monthly payments.
When the final payment has been made, you own the car. This makes it a popular choice for drivers who want to own the car and make predictable payments.
Personal contract purchase (PCP)
Personal contract purchase begins the same as HP with a deposit and fixed monthly payments.
The main difference is that you have a choice at the end of the agreement. You can either return the car or pay a large final balloon payment to own it.
The other difference is that PCP arrangements usually have cheaper monthly payments than HP, along with mileage limits and charges for excessive wear and tear.
Personal loan
A personal loan is where you borrow from a bank rather than a specialised car finance lender. In this scenario, you own the car from day one, and you repay the loan regardless of what happens to the car.
Personal contract hire (PCH)
Finally, there's PCH, more commonly known as "leasing". This is where you rent the car for a fixed period (typically two to four years). At the end of the agreement, you return the car. Simple.
Leasing works best for drivers who are looking for a newer car and don't mind the fact they won't end up owning it.
Why work with a bad-credit car finance broker?
If you have defaults on your credit file, working with a bad-credit car finance broker can improve your chances of getting approved for finance. Here's how.
1. You have a better chance of success
Perhaps the biggest benefit of working with a bad-credit car finance broker is having access to specialist lenders. These hand-picked lenders are more likely to look at your current affordability than focus on your defaults.
This maximises your chances of success and stops you wasting time applying for credit from mainstream lenders with strict credit requirements.
2. They do the research for you
As well as saving you time by avoiding mainstream lenders, using a bad-credit broker also saves you time by comparing available options for you. For many, this is a better option than spending time researching multiple car finance deals.
3. Checking eligibility won't affect your credit score
Most bad-credit brokers use soft-search eligibility checkers. That means the search doesn't make a mark on your credit history. In fact, your credit score won't be affected until you formally apply for finance.
4. They're flexible
Depending on your circumstances, brokers may offer different products – for instance, HP and PCP. This flexibility can help you get the right finance agreement for your specific requirements.
5. You might end up paying less overall
Bad credit tends to mean higher interest rates. On the plus side, working with a specialist bad-credit broker increases your chances of getting a competitive deal with a lower interest rate.
6. It can help improve your credit score over time
Finally, working with a specialist bad-credit car finance broker gives you an opportunity to rebuild your credit.
With the agreement in place, you're now in a position to make your repayments on time and
improve your overall credit score.
Zoomo specialises in arranging
bad credit car finance in Newcastle, UK. If you're saving for a used car but are worried about defaults on your credit file, why not
apply online today? With our 96% acceptance rate, this could be your chance to get the wheels you deserve.
