Can you get car finance with a default?

When looking for a lender to support you as you buy a new car, you may be worried about your financial history. Having defaults might have left a mark in your credit report that stands out to lenders, making it difficult to secure finance without a good credit score. It might be something creditors ask about or weigh when considering your car finance application. However, it still means you can apply for car finance with defaults on your file, your approval chances are just a little different.

It may be tough to get finance without a great credit score, but it’s not impossible. In fact, there are special bad credit car finance options available to you. There are lenders who will consider you even if you have overdue payments on your record.

What is a default?

Having a default means you miss payments and receive a notice that is now reflected on your credit file. As the information on your credit report is tied to your ultimate credit score, it may go down some points. Your default notice (or notice of default) is usually issued after you missed payments for at least three to six months and indicates when you need to have the payments cleared.

How Defaults Affect Car Finance

Defaults on your credit file can significantly impact your car finance application. Lenders view defaults as a sign of high risk, as they indicate a history of missed payments. When you apply for car finance with a default, lenders will assess your financial history and credit record to determine the likelihood of you repaying the loan. A default can lead to higher interest rates, stricter loan terms, or even rejection of your application. However, it’s essential to note that defaults are not the sole determining factor in car finance applications. Lenders will consider your overall financial circumstances, income, and credit history when making a decision.

What to do after a missed payment?

Many of us might miss a payment or two, especially when we’re short on cash. During one of those moments, you might find yourself needing some finance to get a car. Addressing any outstanding debt with your lender can improve your chances of securing finance. There are plenty of lenders sympathetic to your financial situation who can help, definitely some who specialize in car finance for people with default.

You can still greatly increase your chances of getting approved with a default by following these steps.

1. Create a correction notice

A correction notice is a short statement, usually not more than 200 words, where you explain how and why you missed some of your payments. The notice is an opportunity to describe the situation in your own words. Once it's ready, you can add it to your online credit file. Here, lenders can understand the financial state you're in, and it might help them approve your car finance application quicker.

2. Contact your debt's lender

As soon as you’ve missed a payment, contact the lender that your outstanding debt is assigned to. While you may have consequences for missing the payment, your initiative and communication can have a positive impact on any future attempts to get credit.

While in contact with them, you can make a plan for the next payments. It’s a good idea to pay it all at once when possible or set up a plan to pay in monthly installments. Finance companies are thrilled to see when debts are paid in full or in small, recurrent increments. Making an effort to reduce your debt, no matter how small your monthly contribution is, makes you a more likely potential customer as it shows your willingness to repay your debts.

3. Learn your credit rating

You can stay on top of how lenders see you by knowing your credit score. If you have concerns about your credit file from past financial behavior, take a quick look at it. Checking your score is the first step to improving it. Knowing your score and credit history also helps you estimate the chances of creditors accepting your finance application, so you don’t waste your time with lenders out of your range, especially if you have a good credit score.

4. Increase your credit score

Your best chance of getting car finance with default on your record is by improving your good credit score. Diving into your history and understanding what helped or decreased your credit score lets you learn how to grow your rating. Simple actions like using a credit card often for small purchases and then paying the balance off immediately can help immensely.

Having a competitive score doesn’t just mean getting more finance – it can also have a crucial effect on the interest rates you receive. Bettering your credit rating can mean securing a better car finance deal.

Checking Your Credit Report

Before applying for car finance with a default, it’s crucial to check your credit report. You can obtain a copy of your credit report from one of the three major credit reference agencies: Experian, Equifax, or TransUnion. Reviewing your credit report will help you identify any errors or inaccuracies that may be affecting your credit score. You can also use this opportunity to understand how lenders view your credit history and make informed decisions about your car finance application. Additionally, checking your credit report will allow you to identify any outstanding debts or missed payments that may be contributing to your default.

Car Finance Options with Defaults

While defaults can make it more challenging to secure car finance, there are still options available. Some lenders specialize in providing car finance to individuals with poor credit history, including those with defaults. These lenders may offer more flexible loan terms, such as longer repayment periods or lower deposits. However, be aware that these options may come with higher interest rates or fees. It’s essential to carefully review the terms and conditions of any car finance agreement before signing. You may also consider exploring alternative options, such as guarantor car finance or joint car finance, which can help improve your creditworthiness.

Applying for Car Finance with a Default

Applying for car finance with a default requires careful consideration and preparation. Before submitting your application, ensure you have a clear understanding of your credit history and financial circumstances. You can use online tools or consult with a financial advisor to help you navigate the process. When applying, be honest and transparent about your default and provide supporting documentation to explain the circumstances surrounding the missed payments. This will help lenders understand your situation and make a more informed decision. Additionally, consider working with a broker or specialist lender who has experience in providing car finance to individuals with defaults.

Consequences of Defaulting on a Car Loan

Defaulting on a car loan can have severe consequences, including damage to your credit score, repossession of the vehicle, and additional fees. If you’re struggling to make payments, it’s essential to contact your lender as soon as possible to discuss your options. Ignoring the issue or missing payments can lead to a County Court Judgment (CCJ), which can further harm your credit score. In extreme cases, defaulting on a car loan can result in the lender repossessing the vehicle, leaving you without a car and a damaged credit record. To avoid these consequences, it’s crucial to prioritize your car loan payments and seek help if you’re experiencing financial difficulties.