When you apply for a loan, your lender considers credit score to examine your creditworthiness. Approval or rejection of a loan application always depends on your credit history. A poor credit rating shows how much you have struggled to make repayments on time in the past. Since the lending industry has been lenient, some direct lenders allow you to take out a loan despite less-than-perfect credit report.
Well, can you take out a car loan? You have a dream of being behind the wheel and you do not have enough funds to purchase it. You turn to a direct lender but you face rejection because of your credit score. If this is keeping you from financing a car, do not worry because you can apply for bad credit car loans from direct lenders.
Here is what you need to do:
- Check your credit rating
First off, you should take a look at your credit report. You can request credit bureaus to have your credit report once in a month free of cost. Generally, borrowers assume that their rating is disappointing as they have extended their budget, but this is not always the case.
Do not make any decision based on your assumption. Your credit score is a big influencer while fixing the interest rates at your car loan. You are likely to have a low credit rating because of an error made by the bureau. It may have a default that you might not have made. Make sure that you identify all defaults and if any goes unidentified, ask the bureau to correct it.
- Research different car loan lenders
Banks and credit unions will deny you lending money by reason of poor credit rating, but you can contact a direct lender. Do not grab the first offer. You should do extensive research to find the lender who offers the best deal on auto loans.
These loans come with high interest rates. However, some online lenders offer the loan at affordable interest rates. So be on the lookout of lenders who offer these deals to subprime borrowers.
- Make sure you have enough down payment
Financing a new car will be almost impossible if you have no or very little down payment. The more the money you put down toward your new car, the lower the interest rate will be charged. You will also pay lower monthly instalments.
Even though you have a less-than-perfect credit rating, you can get the loan at an affordable interest rate if you have a big amount as down payment. So start saving money right away if your financial goal is to buy a new car.
- Know about your affordability
Before you apply for an auto loan, you should have a clear idea of how much it will set you down. Use car loan calculators to know about monthly instalments and total dues. However, it will give you estimation only. The cost may be higher at the time when you apply for the loan. You can also ask your lender about the total cost of your loan so that you will buy the car in your price range.
Here is how you can get the loan with a bad credit history:
- Gather documents
The lender will look into other factors to verify whether you could afford repayment or not if your credit rating is not excellent. You will submit the documents like the copy of your bank statement, income statement, your residential address etc.
Your bank statement will not update about your credit history, but it will let your lender know about your repayment capacity. You can get the loan at lower interest rate as long as you have sound financial condition.
- Get a guarantor
If your financial condition does not meet the criteria set by your lender and you have also a poor credit rating, your application might be turned down. In this situation, getting a guarantor with a good credit history can be a good option because the lender can call upon them in case of a default.
This minimises the risk of the lender, so chances are you will get the loan at lower interest rates. It may save you thousands of pounds in your loan instalment. Remember that any default will affect the credit score of your guarantor along with you. Get the guarantor only when you are certain that you will miss any repayment.
Getting a bad credit car loan from direct lenders is not difficult, but you are suggested that you should have a good credit rating. Bad credit score may put trouble in getting attractive interest rates. In this situation, you may get the best deal only if you put a good amount of down payment. Start savings money and make efforts to build up your credit.