For many, a car is an indispensable asset. Without one, you might find yourself unable to get to work and earn a living. As such, taking out a loan, and paying interest on that loan, is often justified if it means getting on the road.
But what happens if your history with debt is less than exemplary? Let’s take a look at how to make a purchase of this kind, even if your credit record is poor.
Improve your credit
Let’s start with the most obvious approach. If you can drag your credit rating up, even just a little bit, then you might find yourself able to borrow more money. What’s more, you’ll be charged less interest on the money that you borrow. Before you invest in a car (or any other significant asset), it’s always a good idea to examine your credit score, pay off high-interest debts, and get the overall balance of your debt down.
Explore financing options
What if you can’t improve your credit score in the short term? In this case, you might look at lenders who specialise in bad credit car finance. These are willing to take on debtors with poor ratings, allowing you to buy the car on a hire purchase basis. Sometimes you may need to put down a deposit but this isn’t always necessary. This means that you’ll eventually come to buy the car, but you won’t own it outright until the loan (and the interest) are repaid. Once you do, however, you’re free to sell it.
Increase your deposit
Often, you can make a loan viable by simply offering a portion of the money upfront. The larger the deposit you’re offering, the less risk your creditor will assume. This will tend to be reflected in the amount of interest you are charged. Increasing your deposit has the effect of driving down your ‘loan to value’ ratio, which is a key metric considered by lenders.
Consider a guarantor
Another good way of lowering the risk, and making a loan viable, is to nominate a trusted person to step in and cover the cost of your debt in the event that you aren’t able to do so. When this happens, it might still count against your credit rating, however – and not every lender will agree to this kind of arrangement. Shop around and look for someone who will – provided that you have a suitable guarantor.
