Private lenders UK
  • January 29, 2021
  • admin

People, especially the millennial generation in the UK, are fond of fast cars and since many of them are quite expensive compared to the average savings rate in the UK. Thus, people have to resort to taking loans to finance their new car.

Now, getting a car loan approved in the UK is not easy, especially when you have a poor credit history.

This blog will explain your credit score's impact on your eligibility for car finance and whether taking a guarantor loan could change anything. 

Apart from commercial banks, there are alternative sources of financing in the form of direct lenders and private lenders in the UK. These lenders are offering personal and business loans, especially to bad credit borrowers.

In addition, these loans are unsecured, for which the borrower does not have to pledge any asset as collateral, and neither is he required to produce any guarantor to be eligible for these loans. The only downside to these loans is their interest rates, which are significantly higher than those of a commercial bank.

Let's look at different credit scores ranges and how it suits the criteria set by other lenders for car loan eligibility. Here it goes:

What is an Ideal Credit Score to get Car Loans in the UK?

Some respite upfront. You can usually get a car loan with almost any credit score. Still, if your credit score falls below the national average, you will not get ideal deals that borrowers with a decent credit score will quickly accumulate.

These deals vary in nature from the interest rate perspective. A borrower with a higher credit score will get loans at near-zero interest rates. Let's segregate deals based on credit score range,

  • 961-999 (Best Score): If your credit score by Experian (a credit reporting UK company) falls in this range, then you are highly fortunate since this is the ideal credit score one can have. With this score, you will be eligible for almost all the best car loan options in the market.
  • 881-960 (Good): This is the next best range where you would want your credit score to stay, if not above these levels. With a credit score in this range, one can quickly get multiple car financing deals, if not the best deals with near-zero interest rates. This is an excellent territory to be in, even if you need an urgent personal loan from a bank or a direct lender.
  • 721-880 (Average): This is the central zone wherein you will be eligible for some excellent financing options for car loans and would not qualify for the best car financing deals. You can stay in this zone and strive to improve your credit score, if possible.
  • 561-720 (Bad): Now, this is not the right zone for your credit score to be in. You will always be at a higher risk to get your loan application rejected. If your car loan application is approved with a credit score in this range, then the interest rates would be high.
  • 0-560 (Poor): Forget about applying for a loan from an established bank if your credit score falls in this category. This is because there are very high chances that it will get rejected, further exacerbating your credit score. The only option for you is to apply for a bad credit loan with private lenders in the UK.

Why are Credit Scores in Loans Given Importance?

The big question is, why do lenders emphasize so much on the credit score aspect? The fact is that these lenders want to assess the credit risk that is the risk involved in lending to you. They get a better idea of the level of risk they are about to undertake, if they decide to lend you and whether they can take that amount of risk.

A credit score tells everything about your history of repayment for all the loans you have taken in the past. If you have a low credit score, then the chances are high that you will have a tough time repaying it, raising many red flags.

Can Poor Credit Score Borrowers get Car Loans?

What about the borrowers with a low credit score and want to buy a car for their family? There are options for car financing as well for this category of bad credit borrowers.

There are chances that with a bad credit score, that your loan application will be rejected, but it is not necessarily true. Established commercial banks with a long history are bound to reject your loan application, but alternative modes of financing in the likes of direct lenders in the UK present online.

You might have to pay an additional interest rate higher than what they would have charged you if your credit score would have been higher.

Thus, if you have a low credit score, then don't apply for a car loan with a bank; instead, start research for lenders in the UK who offer loans to bad credit borrowers.

Mentioned below are some of the tips which could help you get a loan quickly and easy repayment:

  • Higher Down Payment: This is the upfront payment that you agree to give out from your savings, and a lender will finance the remaining amount. Thus, to increase your chances of getting a loan approved, agree to pay a higher down payment, which also means lesser repayment and interest cost on that despite higher interest rate.
  • Look for a Broker: If you are oblivious about alternate financing options or are apprehensive of the same, you can start searching for a broker for car finance. This will save you from applying to lenders who are sure to reject your application further downgrading your credit score.
  • Shorter Repayment Tenor: Experts' interesting suggestion is to opt for a shorter repayment tenor in a car loan. This technique saves you many pounds, which otherwise would go into interest repayment on the outstanding principal amount. 

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