Borrowers often have to struggle a lot to get car finance in a bad credit situation. Not only this, there is also a risk of scams and countering of unauthentic finance deals. In that case, it is vital to find the right finance provider while eliminating the chance of scams through an organized approach.
The scam can be in any shape and form
Whether in the name of hidden fees or additional mileage charges, scammers try to trap you in some way or the other. Hence, if you make a rational decision and search for the right finance provider with proper research, despite the previous credit situation, you can avail of car finance smoothly.
What is bad credit car finance?
Bad credit card finance specifically refers to car loans that are available to people struggling with poor credit situations. This finance option is available to people with low credit scores due to missed payments, bankruptcy defaults or a shorter credit history.
Due to poor credit records, such people have a high-risk profile for lenders. Hence, the fee and rate of interest on bad credit car finance are slightly higher than standard loans.
Types of car finance
Varied types of car finance let you borrow funds as per your choice and financial circumstances. Let us explore the available options. It is significant to mention here that you qualify for a finance option only as per your financial capacity.
Especially in case of poor credit situation, you may or may not be able to choose the type. However, poor credit finance from direct lenders is always attainable for all due to their flexible lending methods. Proving your repayment capacity is sufficient to get funds and buy your car and repay affordably.
- Hire purchase – This type includes a mandatory deposit and fixed monthly instalments. Once you make the final payment, the ownership of the car is transferred to you.
- Guarantor loans – This includes a third party, usually a family member or a friend, to guarantee your car finance repayments. In case you default, they are liable to pay the pending amount.
- Personal contract purchase (PCP) – The PCP has a lower monthly payment as compared to hire purchase. But the final payment is big, after which you receive the ownership documents of the vehicle.
- Personal loans – As always, the loans for all your personal purposes help you buy a car as well. However, in this case, too, you need to pay a deposit as not the complete cost can be supported by a personal loan except in rare cases with a very strong repayment capacity.
- Bad credit loans by direct lender – As an alternative to traditional lenders, bad credit car finance from a direct lender is a preferred choice these days. Instant approval decisions, no obligation, and customised deals are some of the features that attract borrowers.
Risks in bad credit car finance
As we are talking about avoiding scam, definitely there are some risks involved in the car finance for poor credit people. If you know about them, it is easier to be cautious and take the right decisions.
- Upfront payment scams – Finance companies asking for processing or admin fees are not genuine. Therefore, avoid them to prevent a big loss.
- Mileage and condition fraud – The car dealer misrepresents the vehicle’s mileage or history. A common fraud and hence, stay cautious.
- Phantom car dealers – Vehicles that don’t exist are advertised at negotiable prices. They ask for a deposit before showing the car.
- Pyramid referral scams – Such scams provoke you to get car finance with any credit score in exchange for recruiting others.
Hidden charges you should be aware of
If you are ignorant about the hidden charges, you may get caught by scammers paying unnecessary charges. Following are the types of hidden charges that are not required to remain hidden if they are actually applied in an authentic manner.
- Excessive admin fees – This fee type is sometimes presented as set-up costs or admin fees.
- Excess mileage charges – These are expensive charges applied in the name of excessive mileage.
- Early repayment charges – The fee is charged for paying off your loan before the tenure ends.
- Balloon payments – This requires you to pay a large final amount, which is usually not clarified at the start.
- Insurance add-ons – Without informing you clearly, gap insurance or warranties are added to your car finance deal.
How to avoid a scam?
With several precautions, you can improve your chances of getting a fair and affordable deal despite a poor credit situation.
- Do your research – Know the realistic experiences of other buyers by reading reviews and getting watchdog alerts and testimonials. Consumer forums and Google reviews are dependable platforms.
- Use reputable platforms – Choose only those finance providers that are known and reputable in the finance market. With a bad credit situation, you have to be double sure about your decisions.
- Avoid upfront fees – Never choose the lenders who ask for upfront fees. They always put you in a fix, and you don’t get what you are looking for in a good car finance deal.
- Inspect the vehicle before final purchase – Test drive and view the vehicle to ensure certain aspects. These are mileage consistency, finance, accident or theft checks.
- Understand the car finance terms – Ask for a full breakdown, as it helps to know well about the terms. Monthly instalments, total cost, mileage limits, early repayment options, etc., are important factors.
Tips for smoother access to bad credit car finance
After reading above about the possible threats of poor credit car finances, you can use some tips to avoid them.
- Check your credit report and credit score – Before applying for any loan, whether it is a car loan or any other type, check your credit report for any errors. Remove the incorrect information, as that can degrade your credit rating even more, causing loan rejection.
- Set a realistic repayment budget – Finance brings the evidence of the consequence of repayments. Hence, you should always have a repayment plan ready. Lenders will see this as responsible financial behaviour, which improves your approval chances considerably.
- Save for a deposit – If you are really looking for urgent loans for bad credit from a direct lender or any other provider, save for a deposit. Do it as much as you can. The bigger the deposit, the lower the loan amount and the lower the interest rates. All this makes repayments easier.
- Consider a guarantor if required – In case your poor credit score is acting as a hurdle in qualifying for a larger amount, bring a guarantor. However, the guarantor should have a good credit score to be able to help you borrow a larger amount at affordable terms.
- Prequalify online for informed decisions – When you pre-qualify for a loan, you get to know about the approximate cost and loan amount you can get. Therefore, apply for a loan quote beforehand, as that does not leave any search footprint on your credit report.
Conclusion
After reading all the above information, it is now possible for you to make wise decisions on bad credit car finance. With the presence of online and transparent direct lenders, it is easier now to finance your car.
Poor credit score is no longer a decisive factor. Hence, just follow the tips given above and use the information for your benefit. Only don’t forget to keep a strong repayment capacity and good deposit. These two factors always let you borrow with flexible deals.
