The UK has been through a tough few years with the double dip recession that the UK is trying to work its way out of. As the economy is still shrinking, it would be a fair assumption to make that the car finance market would be facing uncertain times. Although the recession has not been as hard-hitting as the first in 2008, it is making the lending criteria tighter amongst some car finance lenders.
While consumers with excellent credit histories will still not struggle to obtain car finance or personal loans at very good rates, other consumers with varying credit files will start to see their APR levels being offered starting to rise. As well as this, acceptance criteria will become harder to pass.
As with most financial products your ability to obtain an acceptance will all depend on your credit file. This is one of the most important factors that a lender will look at when deciding whether to accept you for a loan.
It may seem as a new car is therefore an unobtainable product. However, there are still options available to most people. In particular if you have a poor credit rating, car finance is probably your only option. The following advice from Creditplus.co.uk breaks down the benefits of car finance for varying credit ratings:
Excellent Credit Rating
If you have a good credit history you will be able to obtain car finance without any issues. Some consider personal loans to be the best option when looking for a loan, but if you are looking to buy a car then car finance will probably be a better option.
This is because many people, even with excellent credit, will be unable to have two personal loans running side by side. However, you will be able to have car finance and a personal loan running side by side. So if in the near future you are likely to make any home improvements or you are looking pay for a special occasion such as a wedding or travelling, choosing car finance will allow you to do so.
Good / Fair Credit Rating
With tough economic times causing high unemployment levels it is understandable that some people may have struggled to make all of their payments each month. For many this is a new situation as they will have a good track record of making regular on time payments. It has also become harder to become a home owner, therefore fewer younger people have a mortgage.
These two reasons can be common causes for people having good or fair credit ratings instead of excellent. You only need to miss one payment and you will be seen as having a good credit rating instead of excellent in most lenders’ eyes.
Being a home owner provides the lender with a higher level of satisfaction that you won’t move away suddenly and also proves that you have an asset if you were to fall onto harder times.
People with Good and Fair credit ratings should not have a problem obtaining car finance, although the latter group will see their APR levels starting to increase.
Poor Credit Rating
People with poor credit ratings will not be able to get a personal loan. Unfortunately if your credit file is showing a lot of adversity you will be seen as a high risk to lenders as your ‘track record’ will show you have struggled to make payments in the past. If you have poor credit, car finance will be your best option when financing a new car.
As car finance is secured against the vehicle, it is easier to obtain. The lender is taking a lower risk as if you do stop making the payments they are eventually able to reclaim the car (you would have to miss quite a few payments before this would happen though!).
If you are unsure of your credit rating or would like to know which of the categories above you fall into, you can use the Creditplus Credit Rating Guide. This is a free tool that asks you to answer 14 questions, which once you have answered, will provide you with a better understanding of your current credit profile.
If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.