How to lower the cost of bad credit car finance

How to lower the cost of bad credit car finance

If you are considering getting your next car on finance and have poor credit, you may be thinking about taking out a car loan from a lender who specialises in bad credit car finance. These specialist loans will have a higher Annual Percentage Rate (APR), which means you will have to pay back more money than if you qualified for a loan with better credit.

Here is a list of potential ways to reduce the cost of your car loan and get the most value out of your vehicle before, during and after the term of your agreement.

How much can you afford to spend on a car loan each month?

Work out and document how much you can safely afford to spend on the agreed monthly repayments.

If you have an online banking app, you may be able to see a list of your direct debits and standing orders for regular bills each month.

Make a note of weekly purchases such as food and car fuel to add to your expenses.

Factor in yearly bills such as the water bill, holidays, and think amount a buffer amount for unexpected costs such as an essential appliance breaking down, or even a vet bill if you don’t have pet insurance.

Which income can you include in your car finance application?

Unlike a mainstream lender such as a bank, a lender who specialises in providing car loans for those with poor credit may allow you to include certain benefits as income when deciding on a credit limit amount for you to borrow.

If your monthly income is under the minimum amount that is required by the lenders criteria, you could have the option to add a joint applicant, which would allow their income to be included on your application.

Can you reduce the total cost of car finance?

Having a deposit saved can reduce the amount of finance you need to take out.

If you have an existing car, you may be able to sell it privately to contribute towards a deposit, or part exchange with the dealership you wish to get your next car from.

Once a credit limit you can safely afford has been approved by the lender, you can make the decision to spend the entire amount on a car, or even choose to go for a similar but less expensive model to reduce how much you borrow, and the total amount of interest you have to pay back.

How many years do you want to pay off your car finance agreement?

When considering taking out a car loan with bad credit, think about how many years you want to borrow for, and the maximum amount you can safely afford to pay off each month.

For example, if you have an annual large luxury expense such as a holiday abroad, would you be willing to go without that expense, so you could afford to make a higher car loan repayment each month but for a shorter term and less overall interest.

If you decide you cannot go without putting off a holiday or other large luxury expense, you can choose to pay less for the car finance each month over a longer term. Keep in mind that you will have to pay off more interest in the long run if you choose this option.

Think of the future benefits of paying off your car loan

After paying off a bad credit car loan without defaulting on any of the agreed monthly repayments, and you are not missing payments on any other bills or credit commitments during this time, your credit report will look more positive to future lenders. This could help improve your access to lower interest loans next time you need one.

When choosing your vehicle:

The more expensive your vehicle the more the car insurance costs may be. Remember to factor in fuel costs and efficiency associated with your choice of car make and model.

After you have your new vehicle:

Maintaining your car with regular safety checks can help to identify issues before they become a costly repair.

Wear and tear issues are usually your responsibility to fix when taking out a hire purchase agreement for your car. Make sure you learn how to minimise the impact of these wear and tear issues in order to extend the life of certain parts of your car.