If your car is on your last legs and you need something new, you need to consider how good your credit is. If you’ve been refused for credit before or if you have a sneaking suspicion your credit isn’t stellar, don’t fret. You can still qualify for a car loan even if your credit isn’t the best. Here are some tips to help you get the behind the wheels and get moving again, no matter what the destination.
Check your credit first
Your credit score and credit history are both documents you’re entitled to see every year for free. You should check your credit history with a credit reporting bureau such as Equifax, Experian, or illion. The Office of the Information Commissioner has links to each credit bureau and their suite of products (you can pay them to alert you if someone is trying to check your credit, to prevent identity theft for example.)
If the report comes back bad…
Don’t despair! Many lenders will still consider your application for a car loan even if you have bad credit. You can obtain a bad credit car loan, which means you will be paying more than average interest rates due to the lender taking on added risk. You may have to temper your expectations for the type of car you want to drive, but you can make a quick (and approximate) repayment calculation using a car loan calculator.
To use one, you need to know the loan term, interest rate (preferably the comparison rate), and the amount you intend to borrow.
Proving creditworthiness other ways
Your credit score is not the only way lenders consider your creditworthiness, or ability to pay back a loan on time and in full. If you’ve worked to improve your financial standing, you can also demonstrate this using pay slips, tax returns (notices of assessment), stable residential status, savings in the bank, and of course, having “skin in the game” – a deposit.
Having a deposit
Having a deposit for your car can go a long way in convincing a bank or lender you are a dependable and reliable borrower. This means the lender isn’t financing the entire vehicle, which decreases the risk on their part. Having a modest deposit of at least 10-20% not only increases your chances of approval but could lower the initial interest rate a lender may offer you.
Paying off smaller debts first
Before looking for a car loan, you may want to try and start paying off smaller debts such as outstanding credit cards first. Due to comprehensive credit reporting, credit card activity can also factor into your credit score. If you start chipping away at your credit card debts over time, it can improve your score and chances of getting a bad credit car loan at a more competitive rate.