How to Improve Your Chances of Getting a Car Loan with Bad Credit?

If you have bad credit, you might wonder whether it will mean it is harder to get a loan to buy a car.

In general, lenders do take a borrower’s credit history and credit score into account when they are assessing an application.

But, even if your credit isn’t great, there may be ways that you can access a loan. It’s important to understand the options available to you and take proactive steps to find the right solutions.

The team at better finance™ can help.

Here is what you need to know.

Understanding your credit situation

First, it’s important to get a good understanding of what your credit situation actually is.

Your credit score

Everyone has a credit score, which is expressed as a three-digit number. The higher your number, the better your credit. Lenders look at this because it indicates how likely you are to make your repayments on time.

Checking yours

You can access your credit report from agencies in New Zealand such as Centrix, Illion and Equifax. This will show you your score and any problems in your credit history.

Fix any errors

If there is anything on your credit history that is incorrect or should not be there, you can apply to have this fixed.

Choose an appropriate lender

When your situation is a bit different to a standard application, it makes it all the more important to access any support that is available to you.

At better finance™, we can look at the options available and determine what might be a fit for you.

We can also help you to understand what interest rate you might be charged and any other fees payable.

Our advisers are experts at personal lending and are here to help.

Your deposit

You may be able to make your application more appealing to a lender by saving a bigger deposit to put towards your purchase.

This decreases the amount of money that you need to borrow, and could prove to a lender that you have the discipline to regularly put money aside.

If you’re saving a deposit, it’s often helpful to automate this process. When you decide how much you’d like to save each week, fortnightly or monthly, set up a transfer from your transaction account to your savings account as soon as you’re paid to ensure it happens.

Consider a guarantor

Having someone who is willing to act as a guarantor, or co-borrower, for your loan might also help.

This means that they promise to repay the loan if you don’t. They will need to meet your lender’s lending criteria, including demonstrating they could afford to make the loan repayments if you don’t. It’s important that they fully understand what they are agreeing to – we can help with this, too. You’ll need someone you trust, and who trusts you, to make this work.

In some cases, where a lender doesn’t accept a guarantor, they might consider a co-borrower. We can help you look at how this could work.

Improve your credit score

You might decide to try to improve your credit score before you apply. There are a few ways to do this.

Pay off debt

Clear any outstanding amounts you owe and avoid new credit inquiries until it’s time to apply for your car loan.

Pay bills on time

When you pay things like your phone or power bill on time, it helps build your credit history. New Zealand’s comprehensive credit reporting system means bills you pay can have a positive impact on your score.

Make loan repayments on time

If you have a new car loan approved, making the repayments on time can also help build your credit score.

Use our tools

You can use tools such as better finance™’s loan calculator to get an idea of what you might repay for loans of different sizes.

Lenders won’t approve lending higher than you demonstrate you can afford based on your current financial situation, but a calculator can also give you an idea of what is a comfortable fit for you.

Avoid common mistakes

The team at better finance™ can help you avoid lots of mistakes that can happen when you take out a loan.

But there are a few things that you can do to help, too.

Think about the future

If you think your circumstances might change while you’re paying off your loan, consider how you’d cope with repayments.

Set up payments for the day after payday

Don’t get caught short. If you set your loan repayment to go the day you’re paid, you’re likely to always have the money.

Understand the terms and conditions

Make sure you’re familiar with all the Ts&Cs of your loan, including things like any fees you might be charged if you repay it early. We can help.

Your expert team

Trying to get a loan when you have bad credit might be daunting, but the better finance™'s team of expert financial advisers is here to help.

We can offer personalised advice and guidance, and we’re available seven days a week to help you make informed borrowing decisions.

If you have any questions about borrowing with bad credit or personal loans more generally, get in touch with us today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.