The number of car owners is increasing in the UK. In April 2016, the number of car registered in UK hit the highest score in 13 years. We can interpret these statistics in two ways. Firstly, the number of car owners is increasing because all the new car owners have established good credit score. Secondly, people have found alternatives to obtain car financing loans with bad credit.
The first argument seems a little impracticable as unsecure loans like payday loans and guarantor loans are increasing in numbers. Had credit scores been improving robustly in the UK, people would not have been looking up to the unsecure loans. If we consider the second argument, then we must look out to the car loans with bad credit. Here are the essential steps of getting a car loan with bad credit.
Consider Your Credit Report
Your credit report is not the measurement of your credit score. It is a measure of your creditworthiness – a measure of your financing capabilities. A person, who never took out a loan, will have low credit score. However, the lenders may easily approve the loan application of this person, considering his financial capability of managing the budget. The loan application is approved when the lenders expect the borrower to return the money, and this expectation builds on the basis of your credit report.
A credit report is a precise detail of your financial history. It includes bill and loan repayments, credit utilization, new credit accounts, bankruptcy, and more. If you have low credit score with credit history of zero non-repayments, then you are eligible to apply for private car loans. You can also negotiate on the loans terms just like a person with excellent credit score because you have managed your finances within your budget. However, if you have low credit score due to failure of loan repayments, bills, unemployment history, and such then you need to re-consider your budget and improve your credit score.
Evaluate Your Affordability
If you want to get a car loan without improving your creditworthiness then you need to be prepared for high interest car loan. The car loan for people with bad credit is usually around 30% of the capital. This means that if you want a car worth £20,000 then you will repay around £26,000 to the lender. £6,000 pound is the fixed interest. If you obtain the car loan on compound interest terms then the interest will multiply over years. If loan term is as long as 60 months then your interest will also multiply every year.
Precisely, your affordability is based on your creditworthiness. Without creditworthiness, it is based on the interest type and percentage of interest.
Evaluate Your Requirements
Sometimes, you can save money by acquiring the right type of deal. Similarly, you can lose money by getting a deal that is unprofitable for you. For example, if you are a student and require the vehicle for two years only, then Hire-Purchase or Personal Loan is better than other car financing options. You can re-consider your car financing options after two years. If you choose a five-year plan, to save the lender’s fees, then you may end up in trouble, repaying the car payments without even requiring it.
Consider the Down Payment
There are two types of car loans. The first type is the commercial loan obtained from the bank on your credit card. In this type of loan, the borrower makes a down payment. Most of the banks do not allow more than 25% of the total cost of car to be paid as the down payment.
The second type of car financing is done through the private lenders. The private lenders offer Hire-Purchase, Personal Leasing, Logbook Lending, and Personal Contract Private Loans.
Hire-Purchase: The borrower makes a down payment of around 10%. The down payment is not compulsory. The customer repays the loan amount and gets the car ownership after completing the repayments.
Logbook Lending: The Bill of Sale grants the ownership to borrower after completing the loan repayments.
Personal Contract Private Loans: The borrower repays the loan amount based on mileage. The borrower can return the car after the loan term or pay the remaining price to obtain car ownership.
Personal Leasing: The borrower pays the monthly payments for car loan, service and maintenance and returns the car after completion of the loan term.
The down payment can save you from a little, if not all, interest. Consider a type of car financing that best suits you. You can get commercial loan with bad credit score but you will pay high interest on it.
Car refinancing is a complete financial plan. The borrowers should meet the legal advisors and financial planners for car refinancing plans. In this plan, the borrower gets a private car loan for tenure of 12 months only. The borrower will try to improve their credit score. Remember that your credit score will improve when you repay the loan amounts punctually. After 12 months, the borrower will apply for car refinancing based on good credit score. Most of the private lenders require only three months of credit history and steady earning for car loans.
The borrowers can negotiate on all types of loans, including car loans using their creditworthiness. However, if the creditworthiness technique is not applicable then you can save your money by using the rate comparison technique. Visit the market and gather rates from all lenders and car dealers. Make sure to inquire about the applicable interest rates. Calculate the sum of interest, capital, and fees for each lender. Now, compare the rates to find the cheapest car financing option in the market.
When comparing the rates, make sure to choose a reliable resource. Quiddi Compare is there to provide you lowest rates from the most reliable lenders in the market. Visit the website to get more information and details.