Guaranteed car finance means your car finance application will be approved regardless of your credit rating. The fact is that guaranteed car finance does not exist. It is impossible to approve your auto loan application without checking your credit score and repaying capacity.
You might see many lenders advertising their car finance deals as car financing with guaranteed approval, but it is offered as bait to credulous customers. Beware of such false offers. They can trap you in serious debt.
If you have a bad credit rating, you might look for a car loan without the hassle of arranging a guarantor. As a result, you might find such offers attractive. Well, you do not need to fall into the trap of these false offers. There are some other ways to improve your chances of getting an auto loan at lower interest rates despite a poor credit score.
- Check your financial situation
First off, you need to understand your financial situation carefully. Although a lender or a car dealer will look over your credit history and repaying capacity before approving your loan application, it is your responsibility too.
Car loans are not short-term loans. “You will be liable to make payments over a period of time and the repayment term may be up to three to five years depending on your financial circumstances.”
“You should get an idea of how much your income is and if it is sufficient to bear the burden of the debt payment.”
Get your bank statement to see how much money goes out on your expenses. Of course, you cannot use the entire money you are left with for your car loan payments. Your budget should also have wiggle room for unforeseen expenses.
Brace yourself for financial ups and downs. For instance, you may lose your job. It can be difficult to repay the debt at that time from your savings.
“You should have a backup plan to be able to keep up with payments.”
- Offer a larger deposit
You will have to pay some upfront money to get approval for a car loan. The down payment will be 10% of the purchase value of your car. This size is ideal for those who have a good credit score.
“As your credit history is not up to snuff, a lender or a car dealer will expect you to have a larger deposit.”
A bigger deposit will reduce the loan-to-value that will lower down the interest automatically. Car dealers provide two types of financing – hire purchase and personal contract purchase. They are different from a personal loan that you take out from a direct lender.
- If you are looking to consider dealership financing, make sure you know how it works and its pros and cons.
- It can prove to be more expensive especially if your credit report is not stellar.
A personal loan from a lender to finance your car will be much more affordable. The best part is your car itself will serve as collateral and you are free to use it the way you want. Unlike a personal contract purchase, there will be no restrictions on mileage used.
However, you will not be able to sell your car unless you settle the debt in full because your lender has the upper hand.
- You should still have a decent credit score
A bad credit score will not discourage you from getting a car loan whether you apply for it from a lender or a car dealer. However, you are still expected not to have a very poor credit rating.
Experts say, “Before you apply for a car loan, you should always try to improve your credit rating.” In addition, you should take care of the following things:
- Make sure the footprints of late payments and defaults are old.
- You should aim at your score closer to the “fair” category.
- You should not have any other outstanding debts at the time of taking out a car loan.
- The credit card balance should not be more than 30% of the total limit.
- The debt-to-income utilisation should not be more than 25% of your income, in case you have any debt.
If you have taken on small loans like payday loans or loans for bad credit with no guarantor in the UK, try to settle them on time. These loans can cost you an arm and a leg if you fall behind payments. Further, they may act as a hurdle in the process of getting a car loan.
- See if you can apply with a co-applicant
Consider applying for a car loan with a co-signer who has a good credit score. It can be your spouse or other family members. A lender or a car dealer will likely lend you money at a lower interest rate when one of you has a good credit rating.
A lender will check the repaying capacity of both of you, so make sure you have a co-signer who earns quite a good amount of money. A strong repaying capacity of the co-applicant will make the process smoother.
The final word
There is no such thing as guaranteed car finance. If you are being offered a loan as guaranteed car finance, you should not trust it. No lender or dealer can approve your application for a car loan without an affordability check.
Do research before picking any lender or dealer. Make sure they have deals to offer you that suit your financial condition. Try to improve your credit rating, arrange a larger deposit and apply with a co-signer with a good credit rating. These useful tips will help you get a car loan faster.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
