Car Loans for Bad Credit

Updated: March 28, 2024 Author:

Owning a car used to be seen as a sign of luxury. However, these days, it has become an integral part of how people get to work and enjoy day-to-day life. If you’re in desperate need of a car but have bad credit, your options can seem limited.

Thankfully, there are ways to get a car loan even if you’re credit rating isn’t where it needs to be. Here we’ll look at all the information you need to know to not only get a car loan, but see if it’s the right step for you. 

Understanding Bad Credit

In the UK, credit scores can range anywhere from 0 to 999. Experian (the largest credit rating agency in the country) consider a score of 881 or above to be good. A fair rating is given to any score of 721 to 880.

With that high threshold, it’s no surprise that so many have a bad credit rating. There are a few factors that can affect your rating, the most common being late payments and defaults. High balances can also affect the score, but the most detrimental factors are bankruptcies and other forms of insolvency.

Consistently making payments will improve your score as the issues negatively affecting it get further in the past. However, a bad credit score means you often have a limited range of lending solutions, as you’re viewed as a higher risk.

Challenges of a Car Loan for Bad Credit

Even if you have bad credit, not all hope is lost. There are many companies that will give car loans if you have a low credit rating. This often allows those in desperate need the chance to get the car they need.

While that is true, it’s important to realize that the loan you’re offered won’t have as good terms as someone with good credit. This often means higher interest rates along with more stricter terms and lower borrowing limits.

If you can afford the repayments, this gives you a chance to rebuild your credit rating and enjoy better terms in the future. If you aren’t 100% sure you can afford repayments, it may be wise to look at other options. 

Getting a Bad Credit Car Loan

It’s not wise to head to your nearest lender to blindly apply for a loan. Rejected applications can also weaken your credit rating and therefore you need to apply wisely. Here are some tips for getting a car loan with bad credit.

Research Lenders – Not all lenders will give a loan to someone with bad credit. Look out for lenders that specifically offer loans with bad credit. Some lenders will also have separate loan applications for those with low credit.

Look at Different Lending Types – Most loans are given unsecured, which means you’re solely responsible for the loan, and it’s not tied to an asset or another person. Secured loans and guarantor loans present a lower risk to lenders and can be an alternative if you have bad credit.

Determine Affordability – Before even applying for a loan, know what you can comfortably afford each month. Also, consider additional costs you’ll need to pay, such as maintenance, insurance, and fuel.

Check Your Credit Score – It’s worth knowing exactly what your credit score is before applying. This will give you an idea of whether you can realistically get a loan or not. It may be higher or lower than you thought, and this may change which lenders you apply to. 

Tips After You Get a Bad Credit Car Loan

Once you have your desired loan, it’s important to make the right steps to keep on top of your payments and get the loan paid quickly. Here’s some tips that may help you on your journey. 

Make Payments on Time – It’s an obvious point, but never get a loan unless you are sure you can make the repayments. If you’re bad at managing money, set aside your repayment amount in a separate account until it’s time to pay. 

Pay More Than Required – If you can comfortably afford to, pay more than the minimum required. This will not only get your loan paid off more quickly but also reduce the amount of interest you’ll pay.

Refinance If Possible – If you have a longer-term loan and your credit score increases, it may be worth refinancing your car loan. This will allow you to get better terms at a lower interest rate, reducing your financial burden. 

Avoid Luxury Purchases – For the duration of the loan, avoid making significant luxury purchases or taking on more debt. Paying off your loan quickly may be difficult, but it will be better in the long run.

Communicate If You’re Struggling – It’s always tempting to stick your head in the sand if you’re struggling. The best thing to do is always communicate with your creditors. Often, they’ll offer you some respite such as interest freezes, payment holidays, or payment reduction. 

Alternatives to a Bad Credit Car Loan

The reality is you have bad credit for a reason. Hopefully, your finances have taken a turn for the better, and you’re now trying to recover from a past of missed payments. If you’re still struggling, then it may be a good idea to look at alternatives. Here are some suggestions.

Lend from Family – Instead of using a lender, is it feasible to lend money from a family or friend? It can be difficult to let someone know you’re struggling financially, but this is often the best course of action.

Cheap Car – It’s possible to find older cars in good working order for under £1,000. It may be a better option to make do with an older car for a time before you build your credit up to get something better. 

Lease/Rent – Renting or leasing a car doesn’t come with the same credit checks or financial responsibility. Of course, you don’t have the benefit of owning the car, but it can be a lower risk option. 

Public Transport – Is it feasible that you can rely on public transport? If may be more inconvenient but better for your financial situation. If you work with someone who lives close by, you can offer money to get a lift. 

Is a Car Loan for Bad Credit Right for You?

Car loans can be a lifesaver for those in desperate need of a vehicle. If you have bad credit, thankfully there are plenty of lenders to choose from. It’s important to make the right decision and ensure the payment terms are good for you. 

Rates may not be as bad as you fear, and the process of getting a quote is usually quite simple. If you follow our tips above, then you can get the car you need and have your loan paid off sooner rather than later. You’ll be left with a great car and a brighter financial future.