What If You Cannot Finance a Car due to a Bad Credit Score?
Buying a car is not an easy job. It involves a lot of money to be paid. According to a survey, it is the second-largest expenditure after the mortgage that people finance. When it comes to financing a car, there are various funding sources, and all of them work differently.
Depending on your financial condition, needs, and down payment size, you arrange that which deal will suit best. Although car dealers and online lenders do not mind entertaining applications from bad credit borrowers, you should still have a good credit rating.
If you have a good credit report, you will likely have a car finance deal at better and attractive interest rates. If your credit score is less than fair, you are still eligible to buy your dream car, but you may be asked to deposit larger down payment, and the deal you get will carry slightly higher interest rates.
However, the lending policy varies from lender to lender; you may or may not be approved for a particular car finance deal. There are chances that the lender turns down your bad credit car finance application. Well, you do not worry about that because there is still a way to buy your car. Here is what you can do:
Arrange a guarantor
You may not be aware of that, but guarantor car finance exists. These loans work like a standard car loan under which you are supposed to make fixed monthly payments, and you own the car after making the final payment.
The only difference is that it will involve a guarantor. The guarantor must have a good credit score because this will improve the chances of borrowing money.
You can get a deal at an attractive interest rate because the lender can ask the grantor to make the payment if you fail to do so.
Who can be a guarantor?
- A guarantor can be anyone like your family member or friend provided they have come of age and have a good credit rating.
- Some lenders strictly want the guarantor to be a homeowner while some can allow a tenant to enter into the agreement.
- Likewise, some lenders will never accept your spouse as a guarantor. They will want it someone who is your close friend or relative.
- If you are expecting senior members in your family, it may weaken your application. This is because the guarantor is deemed to bear the responsibility of paying off the debt if you fail to pay off.
Apply for a joint application
It is not easy to arrange a guarantor. The Internet is flooding with information that tells the consequences guarantors can bear if the borrower fails to pay off the debt. This is why it is quite difficult to ask someone to act as a guarantor.
In this situation, you have an option of applying for a joint car loan. If you have a bad credit rating, you can still secure an attractive deal provided your spouse, or another family member has a good credit rating.
Note that the lender will consider income and bank statement of both parties to find the repaying capacity. You both will be responsible for making monthly fixed payments.
Joint car finance can help you secure a deal at better interest rates if your co-applicant has a good credit rating.
Look for a secondhand car
When you have a bad credit rating, a lender can ask you to put down a larger deposit. Even if you are applying for a joint car loan or with a guarantor, some lender may ask you to do so. In this situation, you should drop the idea of buying a new car.
Secondhand cars are cheaper than new cars and this is why you will not need to arrange a bigger deposit. If you finance a secondhand car with a bad credit rating, the lender may sign off on the application without asking for a guarantor. This is because the lending money will be low.
If you cannot finance a car with bad credit rating, you should arrange a guarantor or consider applying for a joint car loan. However, if you still face some complications, you should look for a secondhand car.