5 common mistakes to avoid when applying for a car loan with bad credit
Many of us choose to use car finance to our advantage, to help us buy a new car when we don’t have a lump sum saved to pay for it outright. But this can prove difficult if you have bad credit. Struggling to manage your money in the past might mean that your chances of being approved are lower than those that have a high credit score. Thankfully, there are lenders that can help. Whether you’re looking for car finance on benefits, or car finance for bad credit, there are lenders with terms that could suit your financial situation. Read on as we look at 5 mistakes to avoid when applying for car finance for bad credit.
Not checking your credit score and report
This is a mistake that you should avoid when applying for car finance, especially if you have bad credit. Getting to know your credit score and what your report looks like can be a huge help when it comes to improving your chances of approval. Checking your credit score is simple – you can contact major credit bureaus for free or request a score from your bank. You should do this before you start applying for loans to give you a better idea of whether you need to make a change before applying. If your credit score is low, you can then take the time to try and improve it before you apply. To do this, you should make sure that you’re paying your bills regularly and on time, minimise your credit utilisation, and check for any discrepancies like a misspelt address or name – something as simple as this can have an impact on your score.
Choosing the first lender you see
Another common mistake to avoid when applying for a car loan is not taking the time to research lenders. You can compare lenders easily online, and you should do this so that you can find the best finance option for you. If you choose the first lender you see, you may be missing out on a better deal in terms of repayment and interest rates. Always make sure you shop around before you make your decision as a way of finding the best lender for bad credit.
Applying for multiple loans at once
Whilst you may be eager to secure a car loan, it’s essential that you don’t apply for multiple loans from various lenders at once. You may think that this is giving you a better chance of being approved – but it’s actually doing the opposite! Too many credit inquiries mean your credit score will decrease. It will also show lenders that you are desperate for funds, which may make you appear as more of a risk, hindering your chances of approval further. Do your research and find a lender that is best for you.
Not saving for a deposit
It should be said that not all lenders require you to have a deposit to be approved for finance, but it is helpful. Saving for a deposit means that the overall amount you need for the car loan will decrease, and lenders will view this as less of a risk. But it can also be beneficial to you. Having a deposit to put towards your car means you will be paying less monthly in terms of repayments, which means you will be able to fit your monthly payments into your budget more easily.
Not having the correct documents or information
When you apply for finance, whether that’s online or in-person, you’ll need to make sure that you have all the documents and information you need to supply your lender with the details required to make a quick decision. Making sure that you check the documents that your chosen lender needs to make their decision is essential so that they can assess your situation and determine whether you are creditworthy, and how much of a risk they will be taking by lending to you. It also means you may be able to benefit from quicker approval and better interest rates. If you fail to provide the correct information, you may be subject to delays or even loan denial.
