You are fortunate if you have money to pay for your dream car outright. However, most people take out a car loan. While there are three ways of financing a car like a hire purchase, personal loans and personal contract purchase, you need to figure out which deal suits best your budget and needs.
Whether you take out a cash loan or a car loan, you need to have a good credit score. A lender will always check your credibility before signing off on a loan. A good credit rating proves that you have been committed to your financial repayments.
If your credit score is less-than-perfect, you can have difficulty getting a loan approved at better interest rates. No matter what kind of funding option you are choosing, you will have to pay off the debt at high-interest rates. Getting a bad credit car finance deal in Ireland at affordable interest rates is quite challenging, but there are many ways that you can do this.
Arrange a large deposit size
Regardless of the funding option you choose, you need to arrange a down payment that is not less than 10% of the market value of the car. If your credit report is not up to par and you are looking to borrow money at lower interest rates, you should arrange a deposit of at least 20%.
The higher the down payment, the lower the loan and the lower the interest rate will be. Even if you have a good credit rating, paying down a large upfront payment will make it much more manageable.
Arrange a guarantor
If you cannot arrange a large down payment, you should try to put a guarantor. Note that they must have a good credit rating. It lowers down the risk of the lender to lend you money because they can call upon the guarantor when you fall behind the repayment.
A guarantor can be your spouse, family member or friend. Finding a guarantor is not that easy when your spouse or any other family members are not in a position to become your guarantor. This is because nobody would like to pay off your debt when you fall behind the repayment.
Further, it will not only pull your credit score but will also ding the guarantor’s credit score. Of course, it will make it difficult for them to borrow money at affordable interest rates down the road.
Avoid having another debt
When you are taking out a car loan, make sure that you do not have any outstanding debts. If you have any other debts to pay off, a lender will assume that it can be quite tricky for you to keep up with repayments.
As a result, you will not be able to qualify for the loan at better interest rates. If you have any debts to pay off, try to settle that debt before taking out a car finance deal.
If you have already settled your current debts, the lender may be able to sanction the loan at better interest rates. Further, it will be much easier for you to manage the debt.
Avoid taking a no deposit car finance deal
A few direct lenders offer car finance deals with zero deposit to bad credit borrowers. A zero deposit deal means you will fund the total market value of the car. It increases the risk on the part of the lender, and hence such deals carry very high-interest rates.
If you are looking to buy a car, make sure that you have at least 10% of the value of the car as a down payment. Otherwise, you will end up paying much more than the value of the car.
Buy a cheaper car
A bad credit rating is one of the causes of getting a car finance deal at higher interest rates. A higher deposit can make the loan repayment affordable, but you will still likely get a loan at high-interest rates.
Therefore, you should choose a cheaper car or a second-hand car. Since the car prices are low, it will not put a burden on your down payment, and you can easily manage to pay off the debt even though the lender charges high-interest rates due to your poor credit rating.
The bottom line
Buying a car finance deal with bad credit can be difficult, but you can still have some ways to get a manageable deal.
You should try to buy a secondhand or cheaper car so you can easily manage to pay off the car loan. Try to arrange a larger deposit size or arrange a guarantor.