Home Insights & Advice How is car finance helpful in improving a bad credit score?

How is car finance helpful in improving a bad credit score?

by John Saunders
29th Oct 21 4:17 pm

When it comes to managing money, people often worry about their credit rating, especially when many take out loans and credit lines to finance different aspects of their lives.

Many a deal or lending option usually demands a healthy credit score, and getting finance can be an example. Nowadays, almost everyone favours this route for buying a car, breaking down the payments instead of having to pay out in one lump sum.

Car financing companies allow for a few ways in which you can go about this, such as hire purchase, personal contract hire, and personal contract purchase.

You might assume all these methods are viable only for someone with a good credit score, and the idea of trying to secure finance with bad credit can make you feel at times that you have come to the end of the road, especially after facing rejection at several places.

While it is true to a certain extent, it is possible to take advantage of some of these options when looking to finance a car with bad credit.

Though it isn’t advised to apply for finance too many times in a short space of time, you can find progress in discussing your situation and needs with brokers that can connect you with the right lenders.

The effects of car finance on bad credit

Soft credit search

When you apply for loans and finance, many organisations are required to perform a hard credit search to identify credit risks in your credit report. These searches leave a footprint on your credit history, which have the ability to lower your credit score.

However, with many automotive finance lenders, only an initial soft search is required to process your eligibility for credit. This means you can find peace in mind that, even if you don’t meet requirements for finance at the time, your credit rating won’t take a hit.

Credit approval

The credit approval process can be a very useful time for those with bad credit, as it can help them understand their position as they go through the application with a broker or specialised lender.

Talking over your position with someone with the knowledge to help you out can be very enlightening, and help you see a path to not only credit acceptance, but also improving on your credit rating as a whole.

Timely payment

As with any other lending option, these types of financing options will also have monthly payment cycles. Paying them on time month-after-month will signal the credit agencies of your ability to consistently make these payments, giving a strong indication of financial health. The actual impact can take time to reflect, but sticking to the discipline of making payments on time will ultimately put you in a positive light.

Things to consider

Car finance for those with bad credit can be an opportunity for you to bring your credit score on track. You may need a car for your new job or a small business or for the benefit of your family, so the need for a vehicle can be omnipresent.

Before applying, however, consider the factors that may limit your chances of approval. For instance, in the extreme, if you have been bankrupt, lenders will likely want you to clear this, and possibly even have some time pass, before applying.

Another critical element is affordability. Breaking a car’s value down into monthly chunks is what makes finance so useful, but even these amounts can be out of reach for some – ensure that whatever this monthly payment would be fits in with your budgeting. Otherwise, you will likely need to look for a cheaper car.

It is also very much advised to limit the amount of places you apply to, as applying too many times in a short period of time suggests to lenders that you are perhaps a little too desperate for credit. If you are getting declined in the process, this is another bad signal.

All is not lost when trying to get car finance with bad credit – there are those out there able to help you obtain it, and even nurse your credit rating into a stronger position.

However, don’t rush the process – applying for finance with bad credit is still something you need to be careful with, and not seem too desperate to lenders, while it’s also important to think about your affordability in general.

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