It goes without saying, the use of a car makes life easier for many of us. But if you don’t have the funds to pay for a car outright, where do you turn? Car finance is one of the most popular ways to help you purchase a vehicle to get you from A to B, and with a range of options to choose from, there is something to suit everyone – even car finance bad credit. Below, we’ll take a closer look at some alternatives that can help you finance your new car if you have a low credit score.
Types of car finance
If you’re looking to buy a car, there is a range of finance options that you can take advantage of that mean s you don’t may not need a lump sum to pay towards buying a new car outright. These finance options allow you to choose a manageable way to pay off your car in line with your budget. Here are a few of the most common:
- Personal loan: This type of loan gives you enough money to pay for your car outright. You will then be able to drive your car away and begin to make repayments towards the loan you took out. When the loan is fully paid off, you will own the car.
- Hire purchase: This type of finance is different. You will usually pay a small deposit to take your car home, and then pay a fixed amount over a set period of time. Only after the loan has been paid off will you own the car.
- PCP: Another type of finance you could choose is PCP. This type of loan requires you to put a small deposit down towards your car, and then borrow the rest. You will pay monthly instalments that cover the cost of depreciation and interest. This term tends to last 3-4 years, and when it ends you can decide whether you’d like to give the car back, change it for a new model and start the process again, or buy the car.
Alternatives to traditional car finance
Whilst the options above are some of the most popular traditional types of car finance, there are alternatives that you could think about if they don’t suit you. There is finance to suit everyone, you just have to do a bit of research and find out your options! Here are a few alternative ways that you could finance a new car.
Car finance for bad credit
This type of finance is helpful for those of us that have struggled to manage our money in the past. A bad credit score, unfortunately, shows lenders that you may not be a trustworthy borrower, and because of this, your chance of approval will fall. Thankfully, there are lenders that can offer car finance for bad credit by basing their decisions on affordability rather than how you’ve paid bills in the past. Treating each applicant as an individual means more flexible terms so you can have access to a loan that suits you and your income more easily.
Work with a co-signer
When you have bad credit, lenders view you as a risk – adding a co-signer can boost your creditworthiness and your chances of approval. A co-signer is another person, like a parent or partner that you can add to your application to help increase your chances of approval. Your co-signer will take the role of paying off your debt if you do not have the funds, so it’s essential that they have a good credit score, and are aware of this risk before you proceed. Not only does adding another person to your application increase the chance of you being approved, but it also means you can may benefit from better interest rates.
Save for a large deposit
Another alternative approach that you can take instead of applying for some of the most traditional types of car finance is to save for a larger deposit. If you can live without a car for a while longer, saving for a large deposit puts you in a better position financially. The large deposit brings down the overall cost of the loan you’ll need, which appears as less of a risk to the lender. Not only does this mean that you can benefit from lower monthly payments, but it also means that you’ll may be more likely to be approved by your chosen lender.
