Whether you are leasing or buying a new or used car you will inevitably come up against a credit search. If you are one of those people who has bad or indeed no credit you will be facing much higher interest charges and therefore, paying more for your car!
There are certain measures you can take to ease the pain and keep your interest charges as low as possible.
The importance of credit ratings - car finance
The key is to know exactly the type of vehicle you need, coupled with the knowledge of your personal circumstances and that means your credit rating, this needs to be done prior to making your vehicle choice / weighing up your financial options. It seems to sound like common sense and whilst it is, we can forget.
There is a direct link between the interest rate you are charged on a car loan and your credit rating. If you are looking to lease a car, be aware that leasing companies will definitely charge you a higher rate of interest if your credit history is poor. Leasing companies may alternatively ask for a larger down payment / deposit, or if your rating has fallen enough they will just decline the finance offer.
A good car finance deal will be hard to get if you have a bad credit history.
Additionally, every time you apply for credit and get rejected your credit rating is affected negatively.
It is crucial for you to already know your credit circumstances before you approach any lender. Should you already be aware that your credit score does need to be improved in order for you to obtain a good car finance offer, then you can give yourself time to rectify the situation before you do apply for car finance.
Improving your credit rating
Try and plan 6 months ahead, this is how long it will take to make an impact on your credit rating.
The suggested steps to take:
1. Request your own copy of your credit report. Contacting Equifax and Experian as major credit reference agencies is the best thing to do. Check your credit report for inaccuracies because occasionally there are mistakes that can be rectified in your favour.
2. Tidy your finances by closing any old bank accounts that maybe slipping into overdraft, even if it is only by a few pence.
3. Increase your credit history score by applying for a credit card, once you start paying for one or two minor things and clearing the balance each month it is a really fast way to enhance your rating.
4. Look for credit cards offering 0% introductory rates on purchases to ensure you don't accrue unnecessary charges.
5. Pay the credit card bill promptly; ensuring the credit card stays registered to you at your address.
6. Don't have too much money owing to too many finance companies because a person with too many loans is deemed more likely to default on payments.
7. Don't apply for too much credit because if you are turned down it will affect your credit score negatively.
Should you buy or lease with a bad credit rating?
There are a number of positive and negative reasons to do both and you need to weigh up which one of these would have the biggest impact on you.
Considerations should you wish to buy
You could be forced to approach a very expensive ‘bad credit' car loan lender. Should you be able to afford regular monthly payments, and prove it though, you have more choice of reasonably priced car finance companies for securing a better deal.
Considerations should you wish to lease
Some people consider that leasing companies are a better option should you have limited credit because leasing a car normally means the customer is paying a lower monthly payment than an average car loan.