How to Shop for a Car Loan with Bad Credit: A Step-by-Step Guide

A bad credit score can stop you from taking most forms of credit. When you need a new car and you lack the funds, this can be a frustrating situation. You struggle to get a loan because of your credit score, and you struggle to improve your credit score because you can’t take a loan.

Car finance bad credit is a potential solution. You can get the car you want and build your credit score up again. There are risks – bad credit loans come with high interest – but they are an option when you’re stuck.

If you’d like to know where to start, we can help you.

Here’s is a step-by-step guide to getting a car loan with bad credit.

How’s Your Credit Score?

Whether you have bad credit or no credit history, you can get into a better position. First, check your credit score with one of the soft-search credit companies in the UK. Soft searches are invisible to lenders, and unlike hard searches, they won’t impact your score.

Now you know where you stand. With the right car loan, you can improve your score. Just make sure you can afford the repayments.

How Much Do You Need?

Shop around for the car you want. Try to be frugal here, but shop for a car that will do everything you need. Older, used cars may be cheaper, but you could pay more for fuel and repairs down the line.

That said, newer second-hand cars are ideal. Enquire at a reputable car dealer and make sure they have all the MOT, ownership and tax documents you need. If you’re on a budget, a car with ample space and efficient miles-per-gallon (MPG) is ideal.

What’s Your Budget?

Now work out how much you can afford to borrow. Delve into your income and expenses over the last 6 months, noting all the repayments for other loans you may have. You can use an online budget calculator to help you.

Think about whether you can truly afford a loan. Start to shop around for the best loan you can get. Can you make the repayments?

Be Aware of High Interest Rates

Loans for bad credit are high risk for the lender and the borrower. The lender takes a risk on whether the borrower can repay. The high interest rates mean the borrower risks further financial issues if they default.

Your income and expenses are more important than your credit score. Most lenders will overlook bad credit scores if your paperwork says you can afford the loan. Tell them everything about your financial situation when you apply.

What Are the Repayment Terms?

Look for loans with zero charges for early repayment. This lets you clear your debt faster and pay less interest when you have extra cash. Ask about minimum loan durations and admin costs.

Late payment fees are to be expected, but you can ask about rollover options should you need to defer a payment. Most lenders will charge for this, and you should avoid it, but at least you know the terms in advance.

Know the Risks of Failing to Repay

High interest fees add up in a snowball effect. As your total balance increases, your monthly interest payments increase too, based on your annual percentage rate (APR). Failure to repay can leave you in dire financial circumstances, further harming your credit score.

Your car could also be repossessed. This is a worst-case scenario, and your lender has a duty to help you if you but be aware of the repercussions of losing your car. If you need it for work, this could become a huge issue, but you can avoid it with the right repayment plans.

Choose the Loan for You

We hope this guide helps you decide which loan you need. Think about your other options for finance first, such as a family loan, but if you decide to go ahead, follow these steps and double-check your expenses.

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