When you apply for a car loan or any loan for that matter, the lender is going to take a close look at your credit history.
Lenders typically like to see that you’ve had credit in the past and have paid back your debts in full and on time. This gives them confidence that you’ll also pay them back in full, should they loan you money.
However, maintaining perfect credit isn’t always possible. Sometimes life events or business and work issues could negatively impact your credit record.
Fortunately, there are still options available should you require finance to buy a new car!
There are lenders available that will work with borrowers that have lower credit scores. However, you will still need to have a source of income and the ability to repay your debt. These types of loans might also be suitable for self-employed borrowers, or borrowers who have been operating a new business for only a short space of time.
Depending on whether you’re able to meet the lender’s criteria, there will be some factors to consider when borrowing with a poor credit history.
These include:
Higher interest rates: Given that you are likely going to be deemed as a higher risk to a lender, you will probably be offered a higher interest rate to mitigate that risk.
Higher fees: Lenders might also charge higher fees, such as establishment or application fees, due to the borrower being considered a higher risk.
Capped borrowing amount: There might be a minimum/maximum amount you can borrow as a higher-risk borrower.
Restricted loan terms: Some lenders may require a lower loan term due to the risk factor involved. A lower term equates to paying off the loan more quicker.
Deposit: You might be required to make a larger deposit to help mitigate the lender’s risk.
More documentation: If you’re unable to prove your income source, you may need to provide additional documentation to the lender in order to get approved.
