Generally, financing your car is very simple, and at OSV, we try and make the process as smooth as possible for you.
However, sometimes you can run into problems. While it happens rarely, it does happen, and we think it’s important that you are aware of these problems before you make a decision.
So in this article, we are going to look at the most common problems with financing your car, and how to solve them.
The most common problems with financing your car
You have bad credit
This is the most common problem people will run into when they try and finance a car.
When you finance a car, the finance house need to know that you are going to make the monthly payments. To do this, they will check your credit score and will use this to determine whether you qualify for car finance or not. This is mainly down to efficiency as many lenders use an auto-approval system. And, if you don’t have a good credit score, then you won’t qualify for car finance.
However, it’s not all doom and gloom. If you get denied car finance based on a judgement from the automated system, a human will take a look. They will look more in depth at your credit score and will look at your payment history and how much borrowing you have. Then, they will make a judgement based on that. The more you want to borrow, the more senior the underwriter will have to be to approve you.
What are my options if I can’t finance a car due to bad credit?
If you can’t get finance due to bad credit, then don’t be disheartened, there are other options.
OSV work with specialist funders. Specialist funders work with those with bad credit to help you get car finance. In this case, we recommend that you do your research and ask lots of questions before you decide which specialist funder to go through. Read more about what to look for in a vehicle broker here.
Alternatively, you could look at a cash purchase, or a short term rental. A short term rental isn’t like the daily rentals you get when you go on holiday, but a rental for several months at a time. With short term rentals your credit does not need to be squeaky clean – in majority of cases, as long as you can be found “living somewhere” when they carry out a credit search then this will normally be sufficient. It could also be an option for those who have a CCJ – they will just increase the deposit that is required.
For more information on bad credit, you can read our article here.
You are a young person
It’s tough being a young person. Too old to be immature and too young to be taken seriously, you also might run into problems regarding financing your car as well.
Getting a new car on finance is a very appealing option to a young person. You get a brand new car that’s covered by a warranty and has no miles on the clock. However, getting a car on finance if you are young can be difficult.
Because you are young, the chances are you don’t have much of a credit score. And, no credit score can sometimes be as bad as a bad credit score. The finance house don’t know you’re going to be able to make the payments because you don’t have a history of monthly outgoing payments. It’s not your fault of course, it’s just a curse of being young and having no financial responsibilities.
However, there is a way round this. You can always look at getting a guarantor. This is someone who promises to take on the payments should you fail to make them. This is usually a parent or guardian. This extra security will reassure the finance house that they will get the monthly payments, and improve your chances of being approved for car finance.
You want to end your contract early
If, for whatever reason, you want to end your contract early, then this could appear to be a challenge. But, it’s not really.
If you have a Hire Purchase or a Personal Contract Purchase then all you need to do is phone the finance house and ask for a settlement figure to clear the finance.
Now you have this then you can either clear this off from your own funds, bank loan or find a buyer for the vehicle.
If the car is not worth what you owe then you would need to pay the difference between what you have sold it for and what you owe. This is called Negative Equity
However what banks do not want you to know is that in your contract you should have what is called “Termination Rights” if you have this clause then if you have paid 50% of the total payable and you have abided to all other terms of the agreement then you can had the vehicle back to the finance company with no penalty or adverse on your credit file.
This is how you calculate the halfway point:
- Adding up the deposit, the final balloon, arrangement fees and the monthly payments
- Dividing it by two
- Then minus the deposit and divide the balance by your monthly payment and you will get how many months you will of needed to pay to get to the halfway point.
This would need to be confirmed as correct by the finance house.
What happens if I can’t afford to end my contract early?
If you need to end your contract early but you cannot afford to do so, then this is what you will do.
First check if you are past your “Termination Rights” point as described above, if you are just call the finance house and say I want to give the car back with nothing further to pay. If this is not the case then:
You will ring the finance house and tell them you can’t afford the payments. You will ask if they will give you a break for a month or so, there’s little chance they will allow a break for longer.
Or, you can get a purchase price from the finance house and then try and sell the car to cover the remaining finance.
We do stress that if, at any point, you aren’t sure you’ll make the monthly payments that you tell your finance house straight away. It is also important before you get into a finance agreement that you are sure you will be able to make the payments for the duration of the contract. We know that there are unforeseen circumstances that can make this difficult, but it really is important. You can read more about what to consider before financing a car here.
Hopefully this has given you some idea of the common problems you might run into when trying to finance a car. As you can see, these problems can be solved, so it’s not the end of the world if you do run into these sorts of problems. And, there are always alternatives. If you do have any worries or any problems regarding financing your car, please don’t hesitate to contact us and our vehicle specialists will do everything they can to reassure you and help you with your queries.