From our own experience, we know many clients start out assuming that they won’t get vehicle financing due to their poor credit history.
Let’s be clear – that is typically incorrect. However, there are some issues here that need to be understood.
What is a poor credit history?
In today’s interconnected world, details of our financial lives and related transactions are often recorded in central ‘credit history’ databases.
That may sound sinister but it’s actually a system designed to help everyone, including companies and private individuals. It does so by allowing them to understand and quantify the risks they’re taking when considering lending money to a third party.
If that third party’s records on those central databases indicate that they have, for example, struggled previously to repay loans, then that’s called having a ‘poor credit history’.
That information will be taken into account by potential lenders when constructing loan offers. It might influence how much they’re prepared to lend, at what interest rates and over what period of time etc.
Of course, any lender will ultimately reserve the right to decline an application for finance. In our experience that only happens in a relatively small number of cases – assuming that the application was correctly constructed and targeted at appropriate lenders to begin with.
What does that imply for you?
It’s important to realise:
there is no stigma attached to having a poor credit history;
that can arise due to reasons that you might have been unable to control including illness, redundancy, business failure, divorce and so on. There is no suggestion of ‘fault’ or ‘blame’;
you’re not alone. Exact UK national figures are hard to come by but by some estimates, at the end of the first decade of the 21st century, some 40 million Americans had poor credit history ratings and that’s roughly 20% of all financially-active people.
Having a poor credit history is therefore simply a routine fact of life that needs to be acknowledged and managed when you’re applying for something like car financing.
outright cash purchase (where you have the capital or have borrowed it via some form of loan);
dealership schemes (effectively a form of borrowing but where your choice of vehicle may be restricted);
Some of these typically may not be viable routes for you if you have a poor or very poor credit history. Others may be but we cannot stress strongly enough that it’s important to understand the relative pros and cons of these options as they apply in your individual circumstances.
every time you apply for financing and are turned down, that is also recorded on those central databases. The more rejections you receive, the more of a risk you may appear to be to other potential lenders.
So, multiple applications sent off to various companies in the hope that one will succeed is typically not a suitable strategy if you have any issues in your financial background;
some lenders are more sympathetic to people who have experienced financial difficulties in their past. Getting your application in front of them, as opposed to others who are less understanding, is important.
Some potential car finance providers also offer more attractive interest rates for applicants with credit history challenges than others. You may still have to accept the reality that your bad credit car finance is going to cost more than it would if you had a blemish-free financial background but there is no need to pay more than necessary.
The message is clear – don’t give up simply because you have CCJs or other financial glitches behind you.