Are you searching for a car loan with unpaid bills, bankruptcy, or loan defaults?  You are not alone. Many individuals face these issues. It makes it challenging for one to qualify for a car loan. It is because loan providers may view such individuals as risky borrowers.

Does that mean you can never get a car loan with a bad credit history? No, you may still qualify for a car loan. Certain loan companies help individuals who wish to buy a car despite poor credit. The blog lists how a bad credit car loan works.

How do bad credit car loans from direct lenders work? 

Individuals with credit scores below 720 (561-720) are generally regarded as having a bad credit score. It reveals that you have potential credit issues like CCJ, missed payments, loan defaults, etc. It affects your reliability in making regular payments on the car loan. Thus, the interest rates stay slightly competitive on bad credit car loans.

One generally applies for a car loan with bad credit from a direct lender after comparing the interest and APR on the loan. You receive a basic quote as part of the pre-qualification process. This is not the final quote but an approximate amount that you may get, given the current finances. If you proceed further, you must provide certain documents. It may include-

• proof of income
• bank statements
•  council tax papers
•  Information about the vehicle that you want to buy.

The loan provider then conducts a detailed credit assessment to determine affordability. It may affect your credit score temporarily. He may also demand additional proof, like a guarantor, if you don’t meet the affordability criteria.

Finally, you get the agreement with the best interest, amount, APR, loan fees, total loan costs, and conditions. You must read it thoroughly to eliminate confusion regarding the repayments. After consenting, you get the amount in the respective bank account within 24 hours.

Car loans from direct lenders: Eligibility and major turnoffs

The eligibility criteria may vary across different car loan providers. However, one must check it before applying with any. It determines 70% of the approval chances. Here is the eligibility criteria and things that may affect the car loan approval from a direct lender:

Eligibility  criteria	Things which may affect the car loan approval
You are 18 and over	You have a good number of unpaid defaults
You share a regular citizenship in the country. (Have been living for at least 3 years)	You are currently bankrupt or have not yet been discharged from bankruptcy.
You have a regular and consistent income (salary-based employment)	Continuous evidence of irresponsible financial behaviour ( missed payments, loan defaults, etc.)
You can afford the monthly payments (given the income and other expenses)	You struggle to keep up with the ongoing monthly payments or bills.
If you were bankrupt or had a CCJ in the past, you must have been discharged from it at least 12 months ago	You moved from your job or your current residential address after applying for the loan.
You have sufficient cash backup for expenses that come with a car loan, like car insurance, MOT, maintenance, etc.	Your bank statement reveals too much indulgence in illegal finances like gambling.

Thus, you can see that individuals with stable finances and fair credit history have a high chance of getting a loan. Alternatively, if you hold multiple debts, irresponsible payments, inconsistent income, and illegal investments may affect your loan approval chances.

How to prepare to get a car loan with a bad credit score?

Getting a car on a loan eliminates the hassle of saving money and buying a car. Instead, get a lump sum now, purchase a car, and pay the dues in comfortable instalments. Yes, getting one with a bad credit score is challenging. Here are some steps that may help you get a car loan with a bad credit history quickly:

Step 1- Check and improve your credit report

Before applying, determine the delinquencies in the credit report. Enquire and confirm the same from the credit agencies. It may take some time to receive an updated credit report. Meanwhile, identify the strategies to pay off some debts.

If not the bigger ones, you can surely repay the small ones like- payday loans, overdrafts, utility bills, credit cards, etc. Such initiatives boost your credit score. It may help you fetch better interest rates on car loans.

Step 2- Ensure disciplined bank statements

If you witness issues like expenses exceeding the minimum income, unnecessary expenses, and subscriptions, don’t apply. Wait until you can completely restrain yourself over the discretionary expenses.

Watch out for every penny you spend. Prefer saving into an emergency fund to using spare cash for dining out. Set direct debits for priority bill payments and savings. Prioritising wants over needs may help you get better at financial management. It will help you spend only what you can afford to repay comfortably.

Step 3- Demonstrate affordability

If you are unsure whether you can repay the amount comfortably, take the initiative. Check extremely bad credit loans in the UK from a direct lender under a cash crunch. Choose an elongated repayment period, like 12 months, to repay the loan comfortably. A longer period is ideal for individuals with a bad credit score wanting to build financial credibility. Here, check whether you can repay the dues without skipping a payment.

Although these loans involve smaller instalments than a car loan, they still help you understand your loan affordability. You can use it in any circumstances, like paying a bill irregularly, home repairs, or pet treatment.

If you can manage this loan comfortably, you can surely manage the car loan. However, if you struggle to understand the options that you may exercise in those circumstances, the wise thing would be to discuss the aspects with the loan provider. In most cases, he may advise you to get a used car finance at an affordable rate rather than a new car finance.

Step 4- Check the best quotes available

After fixing the credit score, repaying some debts, and checking the loan affordability, identify current quotes. Check the discounts that you may get on car loans. Most loan companies release one during the Christmas and New Year’s period.  It automatically reduces the overall loan cost.

Pre-qualify to determine the chances of loan approval. It will help you understand the costs you may expect to pay on the loan. Here, getting a loan from a direct lender is better than from a broker.

It is because you can enquire about any details without making your information vulnerable. Loan providers maintain the encryption and professional conduct by safeguarding your details. So, you can inquire freely without being bothered by privacy breaches.

Step 5-Apply for and get the car loan

If you find the quote affordable, provide the affordability proofs as the lender asks for. It could be –

• salary proof
• bank statements
• salary slip
•  pension slip

Check for the other documents he asks for and provide one. You may need to provide the originals, too, for the verification. Afterwards, you get an amount that you can fairly afford to pay on a car loan.

If you need more, you must provide a guarantor. Later, check the terms and provide your consent. You get the cash in the account within 24 hours of the approval. Lastly, don’t forget to repay the loan dues according to the agreement.

Bottom line

Thus, getting the wheels on the road is not that challenging if you come prepared. The above-listed tips may surely help you get the best interest and improve your chances of loan approval. Identify the reason for the bad credit and work on it. It may take time; meanwhile, explore the quotes for bad credit car loans. It gives you an idea of the costs you may expect. Accordingly, apply for the loan.