When you make a purchase such as a car or a house, you can either pay for the item, which for most would be way out of budget, or you can take a loan. If you purchase a house, the loan is called a mortgage and you can purchase a car with an auto loan. This is a specific type of loan known as a secured loan, you are taking out the loan for the car or house which can be used by the lender if you fail to make payments on your loan. Essentially the lender can repossess your car or home if you default on your loan payments. The other type of loan is known as an unsecured loan and as its name suggests, the lender does not require you to provide an item as security. Often secured loans can be cheaper as they do not pose as much of a risk to the lender.
If you default on any loan, there can be some very serious consequences for you, meaning that you may find it extremely difficult to obtain further borrowing, certainly for a number of years.
Each time you apply for any form of credit, your lender will run a credit search, meaning, that he / she will access your credit file. Your credit file contains information relating to bank accounts, credit cards, electoral registration, loans, available credit etc. It also provides the lender with details about your ability to pay a loan and lets the lender see if you have defaulted on any payments. The lender will access this and may also ask for further information.
If the lender is happy with the credit check and you have met the other lending criteria which may include salary, age etc., they may make an offer of a loan. The lender will decide how much they are prepared to lend you and for what period of time they are prepared to extend the loan.
You should check your credit score regularly to make sure that all of the details that are contained in your file are correct and if you notice that something is incorrect, you should have it corrected as soon as possible. If you check your own credit score, this is known as a ‘soft check’ and this will not impact on your credit score but each time a lender makes a check, this is known as a ‘hard check’ and this will leave a footprint on your file, so it is important not to apply to too many lenders at the one time as lenders could assume that you have too much credit already.
So, how would you go about finding a top lender? A top lender will be a reputable lender who will offer clear and concise terms and conditions and they should be regulated. They will quote their interest rate as an APR and you want that to be as low as possible. We recommend taking a look at the best car loans of 2019. Those with good credit scores will be able to access the best rates of interest. It is important that you check the rate that the lender is prepared to offer you as sometimes the advertised rate is either time limited for the first number of applicants or may not be available to you if you have a poorer credit score. In other words, it is variable.
Car Dealer
Some car dealerships will arrange finance for you, they will generally be affiliated with a company or companies and will offer the finance according to their terms and conditions. Check the APR and check the monthly payments and the duration of a loan. It is easy just to go for the first offer, which may not always be the best.
Internet
There are a number of internet providers who will offer loans. Again, it is important to check their APR and the terms and conditions associated with the loan. If you can speak with someone, it is always a good idea as it can be difficult to understand all of the terminology associated with what you are agreeing to.
Credit Broker
A credit broker is not a lender, instead, the credit broker will have access to multiple lenders and will be aware of all of the terms and conditions associated with each lender as no two lenders work in exactly the same way. The broker will normally be given a commission by the lender for arranging the loan and will usually (but not always) charge you a fee. A good broker will be transparent with his / her fee structure and be prepared to explain that to you so that you will be clear on what you will pay on the completion of the loan. A broker can be a good option whether you have good credit or whether you have bad credit as a broker will take the search away from you, saving you time, and will be able to compare the products on offer so that you don’t have to. He / she will also be able to complete the application process with you and guide you as to what documents the lender will require. If you have poor credit, he / she will be able to look at all the options available and it may be that he / she can source a lender that you otherwise would not have found.
Other Options
With a very poor credit history it can be very difficult. You could always ask your relatives or family members for a loan and as long as you are all clear with the terms and conditions, write them down and have both parties sign, this could be a workable option for some but it can also destroy family relationships if the agreement is misunderstood, so only use this option if there is no other way. Peer-2-Peer Lending is another option worth considering. You, the borrower, are put in touch with another person, the lender and terms and conditions are agreed. If you are a member of a Credit Union, this could also be an option.
Remember, however, as with any type of borrowing, it is essential that you calculate the amount that you can comfortably afford to pay each month. Remember to factor in Christmas, birthdays, holidays etc and if your loan is extending to a number of years, factor in your plans for the future as if your income changes for the worse, you could find that you cannot make payments and your car could be repossessed, leaving you without a vehicle which could impact on your ability to earn money if you require your car to get to / from work.
Educate yourself, ask questions and make sure that whatever you are entering into is going to work for you.
Related website: https://www.knowyourmoney.co.uk/loans/hub/
