Unfortunately, it’s a fact of life that your credit rating will be an essential aspect of your financial dealings.
Most people would love to be able to make purchases, borrow money and leverage other people’s risk without invasive questions about their ability to manage.
Your credit rating has a profound impact on several factors when it comes to financing. Often, when people begin to think about credit, credit ratings and financing, there are more unanswered questions than there are answers.
The internet is a confusing place at times. It can be full of useful nuggets of information (and some not so useful nuggets). When it comes to bad credit car finance, there’s more not-so-useful information than there is helpful information.
To make matters worse, most people writing about credit and financing assume their readers are walking economists. Navigating complex jargon and understanding small print can feel like trying to learn a second language.
We’ve put together this guide bad credit car finance to help you navigate the subject.
If you’re an economist or a financial expert, this is probably not the article for you. If you’re looking for a straightforward guide that covers everything you need to know in everyday English, this is definitely the guide for you.
Before we get into it, we need to make it clear that this article isn’t legal advice. We hope it’s useful for you and arms you with everything you need to know about bad credit car finance but, if you’re looking for legal advice, this isn’t the place to come.
Breaking the language barrier
As we said, dealing with credit agreements and finance can be a real headache because of the language used. It can feel like picking up a book written in another language and trying to understand it.
Unfortunately, nothing is going to change this because of the lengthy laws that govern finance and companies offering finance.
The laws force companies to word things in ridiculously specific ways using language only lawyers understand.
We thought it would be helpful to take every term we could think of that you might come across and define it in plain English.
Annual fee – As the name suggests really, this is a fee applied once per year. It’s usually a fee for the privilege of having a credit account or a fee for the administration of that account.
APR – APR stands for Annual Percentage Rate.
The annual percentage rate is what it costs you to borrow the money.
So, for example, if the annual percentage rate of a £1000 loan were 10% then, the loan would cost you £100.
At the end of 12 months, you would have paid the lender their £1000 back with the extra £100 APR rate.
In the real world, it’s not quite this simple because of Compound Interest, but we’ll get to that later.
It’s worth noting that APR and Variable APR (covered later) are different so check what applies to your credit agreement.
Bad Credit – Everyone has a Credit score (see below). This score is based on the risk to the lender.
For example, if you’ve missed payments several times in the past, this will impact your credit score.
A bad credit score means that it is increasingly difficult to take out credit as lenders are reluctant to lend to people with bad credit.
If you have a bad credit score, you’re on the right page. We are going to share with you everything you need to know about bad credit and how it doesn’t mean the end of the road for you.
Balance – Typically, this refers to the total money you owe on the credit agreement.
For example, if you took out £1000 worth of credit and paid back £700, your Balance would be £300.
Bankruptcy – This is a legal process of taking over a person’s financial affairs after they have declared themselves unable to pay off their debts.
Bankruptcy provides the individual with a blank canvas after 12 months, but, there are some severe consequences for taking this path. Places like Citizen’s advice can help people to think through Bankruptcy.
Collection Agency – This is a company paid by a lender to reclaim the overdue debt. Typically, this is only in extreme circumstances where repayments have been consistently missed, and attempts to settle have been ignored.
Compound Interest – Over time, you don’t just pay interest on a loaned amount but interest on the interest. This works for savings as well as loans.
So, for example, if you borrowed £1000 over three years and paid an APR of 10% at the end of year one your interest charges would be £100. Assuming you paid nothing back (definitely not recommended), your total debt would now be £1100.
In year 2 (again assuming zero repayments) you would owe another £100 as 10% of the loan and £10 as 10% of the 1st year’s interest. Your debt would now be £1210. At the end of year three, if you paid nothing at all, your debt would then be £1320.
Compound interest isn’t a bad thing. See it as an incentive to pay back your loan promptly according to the terms of your agreement.
County Court Judgement – This is an order made by the local court for a sum of money to be repaid. This is one of those last-resort measures used by lenders to reclaim the money.
If you’ve been subject to a County Court Judgement (sometimes called a CCJ), you will likely have a poor credit rating.
Credit – When you borrow money to pay for goods or services, this is called credit. A lender will pay for the goods upfront, and you will pay them back at an agreed rate for an agreed fee.
Credit Agreement – This is the legally binding contract made between you and your lender. It will set out the terms of the loan and the process for which the lender will reclaim the money if you are unable to pay it back.
Credit Rating/score – this is a figure that gives lenders an at-a-glance idea of how reliable you are as a borrower. The higher your credit rating/score, the more likely you’ll be accepted for a loan and the cheaper that investment will likely be.
If your rating/score is low, you may be less likely to be accepted for credit. Companies like Carvine have made a way for you to borrow by introducing bad credit car finance. This service enables people with low credit scores to borrow money and own their dream car!
Credit Reference Agency – A Credit reference Agency is a company that records and stores credit ratings and then supplies them to lenders. You can speak to these agencies and ask them to see your credit file.
Creditor – This is the company (or sometimes individual) who lends the money.
Debit – This is the act of taking a predetermined amount from a bank account. So, for example, in your statement, you might see that £40 was debited for the loan repayment. This means that £40 left your account to pay towards the loan.
Debt – A debt is money owed. If you borrowed £2000 from a creditor, your debt would be £2000.
Default – When you take on credit, you will agree with the lender a schedule for paying the money back. This schedule usually happens in the form of monthly repayments (not always though).
If you missed a payment, this would be called a default. Defaults are some of the most common means by which people find themselves with a bad credit score.
If you feel you are not able to pay on time, it is always a good idea to speak with your lender and come to an agreement to prevent a default from being registered as defaults affect your credit rating.
Direct Debit – A Direct Debit is a way to automate regular payments. For example, you borrow £1000 from a creditor and agree to pay it back over two years at a rate of £41.60 a month. To make life simpler, you could set up a direct debit with your bank to automate those monthly payments.
Fees – A creditor may have fees associated with the loan they make to you. For example, they may charge an administration fee to produce and process the loan paperwork etc.
Guarantor – Some creditors may require a guarantor for their loans. This is a person agreed by all parties that will repay the debt should the borrower be unable to pay.
Hire Purchase – A form of credit where the person borrowing the money doesn’t own the goods until the debt is paid. The possession of the products/services until that point is considered a hire.
Hard-Search – This is when a lender will look at your entire credit file in detail. A hard search leaves a mark on your credit file. If the search results in a declined application, your credit score is likely to be adversely affected.
Income – Money you earn. Your income could come from employment, investments, interest from savings, among other places.
Individual Voluntary Agreement (IVA) – An individual Voluntary Agreement is an agreement made between the lender and debtor. It’s usually a last resort measure to resolve debt before Bankruptcy is considered.
In short, an IVA is an arrangement to pay the debt off at a determined rate and over an agreed period.
Insurance – Insurance is an agreement by an insurer to pay an agreed amount to cover damage/loss according to a contract. Insurance is paid for at a set rate.
Interest – This is the fee you will pay for your loan. It is most often calculated as a percentage.
Lender – A lender is a company or person who loans you a sum of money or a product.
Liable/Liability – Liability defines who is responsible for the money owed. If you borrow £1000, you are liable to pay that back to the person/company who lent you the money.
Loan – An agreement between a lender and a borrower. The agreement sets out an amount of money to be borrowed and the terms for that money to be repaid. Some loans are a like-for-like agreement; others include interest in the repayment terms.
Minimum Payment – A minimum payment forms part of the core agreement between you and a lender. In short, a minimum payment is the minimum amount of money you will agree to repay to the lender on any given month.
Net Pay – Net Pay is an amount recorded on your wage slip; it indicates how much money will land in your account after deductions. Many lenders ask for this figure before a credit agreement to determine if you can afford to pay the loan back.
Outstanding Balance – This is the same thing as Balance. An outstanding balance is the amount of money remaining to be paid.
Repossession – A repossession is when a creditor reclaims money or goods from a debtor. Usually, this is items or money secured against a loan to protect the lender.
Salary – Your Salary is your earnings over a year.
Soft-Search – A soft search is when a lender searches your credit file without leaving a footprint. A soft search will not impact your credit score.
Take-Home Pay – Your take-home pay is another phrase for your net income.
Unsecured Loan – An unsecured loan is a loan without goods secured against the amount in case of non-payment.
VAT – VAT stands for Value Added Tax, it is the tax you will pay on top of the price for goods and services.
Is Bad Credit Car Finance a Good Idea?
It is a false assumption that people get bad credit because they are bad people. Bad Credit ratings can happen to anyone for a considerable number of reasons.
The recent COVID-19 crisis has demonstrated to the world that people’s financial situation can change overnight.
It is a fact though that a good credit rating is essential.
If you have found yourself in a position where your credit rating is really poor, there are only two options available to you. You can either not use credit as a facility and rely on income alone or, you can look at rebuilding your credit rating.
Rebuilding your credit rating is a long process, but it’s worth it.
Taking out bad credit finance is one way you can look to rebuild your credit score.
That should come as good news because it means you don’t have to wait indefinitely to own your dream car.
Carvine offers a facility for credit that allows people who have been refused credit elsewhere to take out credit. That’s not a promise that everyone will be accepted. As a responsible lender, Carvine wants to make sure a loan is appropriate for you and your circumstances before a credit agreement is made.
To answer the question: is taking out credit with a bad credit rating a bad idea? – No, it is not a bad idea. Everybody has a different set of circumstances, and some people might benefit from this type of finance more than others but, taking out bad credit car finance is not a bad idea.
Direct from a lender or via a broker?
When it comes to taking out credit, there are often two main ways to go about this. You can approach a lender directly and negotiate on the best rates, or you can trust a broker to find the best deal possible.
The trouble with option one is that often there’s just too much to consider. Unless you know the world of finance inside and out, you are likely to miss out on the best deals. What’s worse is that with a bad credit rating you are likely to be rejected by many lenders, each time they make a search of your history and, if they decline to offer you credit, this will impact your future score.
If you want to minimise rejection, minimise the impact the application has on your credit file and improve your chances of approval; going directly to the lender is probably not the right option.
A broker has a significant advantage as they have established relationships with the almost endless lenders in the marketplace. A broker will almost certainly find you the best fees and rates. A good broker will also have more options for getting you approved.
When looking for bad credit car finance, brokers like Carvine will give you the edge.
If you’re looking for:
-More chances of approval
-less chance of damaging your credit score
-more options for what you can buy
Then a broker like Carvine is a better choice than going directly to a lender.
Does Bad Credit spell the end of the road for me?
Falling behind on payments, dealing with CCJ‘s and even Bankruptcy can have a significant impact on your outlook. On top of that, being consistently refused credit is a surefire way to make you feel worse.
It might even be that your rating is poor simply because you are self-employed.
Whatever the reason for your poor credit history, we understand how it can make you feel. Add to this a desperate need for a new car, and no seeming means to get one and the situation looks dire.
It isn’t the end of the line, though, Carvine happily provides financing options to people like you regularly. This enables more people than ever before to have access to a car when they need it and not worry that their credit history will get in the way.
You might be surprised to learn that our services can be extended to people who have:
- A low Credit score
- No credit history
- self-employment status
- Individual Voluntary Agreements (IVA’s)
- Discharged Bankruptcy
What can I do to improve my chances of being accepted?
One of the most important things you can do to improve your chances of being accepted for car finance with bad credit is to have a deposit.
The reason having a deposit available is beneficial is because it demonstrates to the lender that you have a ready willingness to pay for the car and are invested in the credit working out.
Bonus Tip: if you are a renter, you can register to have your rental payments counted into your credit rating. Few people realise they can do this. When people discover that they can, they often find their credit rating improving in a short space of time.
You can also improve your chances of being approved by ensuring all your financial information is up to date including details about your property, work and past debts.
We know it can seem tempting but, hold off from applying left right and centre. The more applications you put in, the higher the chance of rejection. People often find themselves in a situation where they are applying, getting rejected and then applying again elsewhere only to continue facing rejection. This will inevitably damage your credit score (potentially for years to come).
The best advice for those who want to grow their credit rating is to stop, make a plan and think through exactly how you’re going to build up again. There’s no rush.
If you do have credit already, you must budget to ensure you are paying the full minimum payment each month. If there’s no penalty for doing so and you have room in the budget, it wouldn’t hurt to pay off more than the minimum payment.
What sort of information do I need to provide to apply for finance?
You’ve got a plan together. You have money for a deposit and are ready to take out some bad credit car finance. For many people in your shoes, the next question is this: What information do I need to have to hand?
Going with Carvine for your bad credit finance is a great first step. Unlike many other organisations, Carvine will be able to shop around on your behalf and find the best possible credit deal for you. The significant upside is that Carvine can search the lenders market without compromising your credit score.
The three steps to follow for securing a Carvine deal are:
Apply to carvine
You will need access to basic information about yourself such as full name, date of birth, salary etc. It’s right at this stage to gather information to help your application such as bank statements, P60 form, ID.
At this stage, Carvine will perform a soft search on your credit file. This will not have an impact on your credit score.
It may come as a shock, but this phase doesn’t take long. We’ve known results to come back in a matter of minutes, meaning that you can be at the paying for your car stage in no time!
As we’ve made clear, not everyone is approved. We have to rely on the information credit agencies provide to us. As a responsible lender, if we feel the loan would do more harm than good, then we will be unable to accept your application.
Having said this, we accept more people for bad credit car finance than the vast majority of brokers out there. Your chances of approval are high with Carvine.
To the dealership!
One enormous advantage to going with Carvine is that we can put you in touch with reputable dealerships. There’s nothing worse than buying a car with a nagging doubt that you’re not getting value for money.
Carvine will help you to pick an excellent dealership with a great history and glowing reviews for that all-important peace of mind.
CARVINE quickfire FAQ’s
I serve in the Military, can I apply?
Carvine are proud to serve our Military. We appreciate the work you do and would welcome your application for Bad Credit Car Finance.
Will you search my credit history?
Short answer – yes. Don’t let that put you off. We conduct a “soft search” of your credit file. This is enough to give us the information we need to decide finance but, crucially, this doesn’t leave a trace on your credit file.
I’m self-employed, is it worth applying?
100% – don’t be put off. Carvine appreciates that different people are employed by various means and recognises the value that self-employed people bring.
Providing your income is banked; we have finance options available.
I have an IVA, can I apply?
Yep, you can apply. Providing you’re regularly paying into that agreement; we can find you credit. There is a formality of checking with the IVA provider that you’re contributions are regular; however, don’t worry too much about this, it’s a standard procedure and rarely a problem.
Do you need an ID?
Yes, your photocard Driving Licence will be required. Carvine has a secure online platform for you to upload this information to make the process quick and easy.
What if I don’t make the same from one month to the next?
We understand that those who are self-employed or those who freelance might have a different cash flow at different times in the year.
This isn’t considered a weakness. You will probably be asked to provide some additional documentation such as your last tax return or bank statements covering three or so months.
Is there a minimum loan amount?
Yes, the lenders we work with suggest a minimum loan amount of £4000
As for a maximum, this is dependent on what you can afford. We have systems in place to ensure your maximum loan amount is fair and affordable.
What about a deposit?
Carvine recommends a deposit. A deposit is an excellent way to show lenders you are serious about the loan.
You can also use your current car as a part exchange. Carvine is even happy to help you with this by telling you how much you can expect to trade in your current vehicle for.
Ok, I’ve found my dream car. What next?
We’re so pleased you’ve found the one (is that cheesy?).
Email us with a link to your chosen car, and we’ll make sure you’re getting a reasonable price for it.
We can also get the ball rolling on the payout and paperwork as soon as you tell us you’ve found the car.
Do I own the car outright?
It’s relatively standard with credit agreements for things like cars for the arrangement to be made as a hire purchase.
Until the loan has been paid, you do not fully own the car. The good news is, once you have paid the loan off, you will be the legal owner!
I have already been rejected recently, should I still apply?
Of course! Providing you can afford the repayments (don’t worry we’ll make sure you can), you’re likely to be approved. Carvine approves most of our applications.
What if my only income is from benefits?
What counts when you come to Carvine for finance is not where your income comes from but whether you can afford to repay a loan.
Providing you can afford the repayments, Carvine will likely find a finance agreement to suit you.
Can you promise me I will be accepted?
There isn’t a company providing finance that can do this. If you are promised, you will be accepted before applying; you cannot trust the company.
Having said this, we approve the overwhelming majority of applications.
As specialists in bad credit car finance, we’ve built great relationships with providers of credit. We can negotiate hard for you and win you the best deals, maximising your chances of being approved.
Will I need someone to guarantee my finance application?
Absolutely not. Carvine refuses to go down that route.
We want to encourage responsibility in taking out finance. If you are applying for bad credit car finance, we’ll be checking to make sure you can afford to repay. This isn’t about being unfair, quite the opposite.
We are proud that we are a responsible lender and want you to be reassured that we are here for you.
We hope our ultimate guide to bad credit car finance has equipped you with all you need to make an informed decision.