Adverse credit can occur as a result of something as trivial as a single, missed payment to something more serious, such as being declared bankrupt. Bad credit entries are registered with all three credit reference agencies – Experian, Equifax and Call Credit – and stay on personal credit reports for 6 years.
Is a Bad Credit Car Loan Possible?
A bad credit car loan is definitely possible, but this variety of car finance will attract a higher rate of APR. It also means that certain sources of borrowing are not available. Bad credit isn’t a problem if sufficient disposable income is available, but it is important not to avoid a high debt to income ratio.
Car Finance Companies
There are a number of car finance companies that specialise in bad credit car loans. They make buying a car possible, but they charge a higher rate of APR. The loan is secured on the car meaning that it doesn’t belong to the borrower until the last bad credit car loan payment has been made.
The main thing a bad credit car finance company will be checking for when lending money is affordability. Adverse credit is expected as it’s the foundation of their business, but being on the borders of affordability isn’t. A high debt ratio increases the risk of default.
The price range of available cars is diverse so buying a car is a straight-forward process for virtually all income groups. Repayments can be spread over several years, but the high interest payments mean that it is sensible to minimise the term of the bad credit car loan to reduce the interest burden.
Buying a Car with an Unsecured Loan
Regular unsecured loans will be available at slightly higher rates of interest to those with minor adverse credit, such as missed payments. If a missed payment was the reason for the bad credit, it will still be possible to get a car loan.
Those with multiple missed payments, defaults and CCJ’s may be able to get an unsecured loan, but the rate of APR will be a usury rate of about 60%. It simply isn’t advisable to get a bad credit car loan at these rates as the interest payments will test the boundaries of affordability.
Buying a Car with a Secured Loan
Those who can’t get an unsecured bad credit car loan may wish to consider taking out a secured loan. The fact that the car loan is secured on a person’s home results in a lower rate of APR. Always remember that the family home can be repossessed if repayments aren’t maintained.
Adverse credit will mean that a bad credit car loan will be more expensive. If in desperate need of a car loan, it is strongly advised that a car finance company is approached. This is vastly preferable to a secured loan due to the risk of default and resultant repossession.