If you’re in the market for a new car, you may be considering the car finance route. Car finance is a popular option for drivers who can’t afford to pay for a car with one lump sum payment. Instead, you spread the cost of owning a car into monthly payments which are suited to your budget. You may have already heard the likelihood of securing car finance can be affected by your credit score. But, do you need a good credit score to get a car on finance? Let’s find out!
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Why is your credit score important to car finance?
When you apply for car finance, you may notice the lender wants to run a credit check on you. But, why? Lenders want to know how you’ve handled your credit in the past to make an assumption about which type of borrower you’ll be in the future. Based on your ability to make payments, they will decide if they think you’ll be likely to pay their loan back too. A low credit score usually means you’ve had trouble in the past with meeting repayment deadlines, this puts future lenders off as you are more of a risk.
Do you need to have good credit to get approved?
Credit score isn’t the only factor lenders take into consideration when approving drivers for finance. However, it does have a big impact on the approval process. Your credit score helps lenders to understand if you can be trusted to pay a finance deal back on time and in full. From a lenders point of view, it’s all about risk and whether they are going to get their money back or not. A credit report is a good indicator of how you look after your financial commitments. However, it’s not the sole factor which goes into a car finance decision. Having a better credit score can also give you access to the best interest rates as a reward. It can be possible to get a car on finance with bad credit but your options may be more limited and you may be faced with a higher interest rate.
What’s the lowest credit score needed for car finance?
If you have bad credit and are searching for what the lowest credit score you need for finance is, you’re out of luck. It can be hard to see what the lowest score is because there are different credit reference agencies who set their own criteria. What one credit company sees as a ‘poor’ credit score; another may view it as ‘fair’ credit so it wouldn’t be fair to set one credit score for car finance today. Similarly, someone may apply for finance with an excellent credit score but if they can’t afford the monthly payment, they wouldn’t be suitable for finance. If you’re worried about car finance impacting your ability to get a car on finance, it could be recommended you take some time to improve your credit before applying.
What else is considered when applying?
As we’ve mentioned above, there are many factors which can affect a lenders decision when you apply for finance. Each lender sets their own criteria but many lenders may consider the following:
1. Affordability.
One of the main reasons you could be refused a car loan is if you simply can’t afford it. When you apply for finance, lenders will ask how much you want to borrow, how much you earn and usually ask for payslips and bank statements to verify your income. It would be unethical for a lender to give money to anyone who couldn’t afford to pay it back so these checks are put in place to avoid this happening.
2. Employment.
Lenders may not just consider what you can afford now but what you can afford in the future too. Being in full time employment for a prolonged period of time may be preferred as it shows good financial stability and you may be less likely to default on a car loan. It can be harder to get a car finance deal if you are unemployment, work part time or are currently in a probation period.
3. Licence type.
It may seem obvious but you can’t get a car on finance if you don’t have a full UK license. If you’re currently taking driving lessons and have a provisional licence, there could be options available to you. However, your finance options would increase once you have a full driving licence so it may be best waiting until you pass to ensure you’re getting the best deal possible.
