22 July 2019 Concept Car
Bad credit and car finance are a tough mix for most people.
With lending criteria pretty strict for most of the major lenders, rejections are more common and it gets to the point where finding any lender, whoever it is, to say yes, is a win.
But there’s a difference between getting an approval, and getting a good deal that actually works for you.
And when you’ve got poor credit, how you approach the market matters just as much as whether you get through the door.
For people coming to us the question of whether to go to a direct lender vs a broker comes up a lot. Both options can work depending on your preference and situation. But they do work differently, and for bad credit borrowers in particular, it’s worth knowing how both work before you start applying.
A direct lender is exactly what it sounds like. The company you borrow from and the company you deal with are the same. There’s no one else in the middle.
That used to mean your bank.
Direct lending is more varied today. Some dealerships have the financial infrastructure to lend in-house. Some specialist companies work as direct lenders specifically for borrowers with bad credit.
The upside of working with a direct lender is you know who you’re dealing with and the process is straightforward.
The downside is you’re limited. If you’re dealing with one lender you have to meet their specific criteria, and if you don’t you won’t get approved. And you have to start again.
A broker sits between you and a lender. They take your application and match your profile to the lenders most likely to approve it.
We’re a credit broker at Concept Car Credit. When you apply, we run your details against a panel of specialist lenders, rather than asking one to make a decision based on your own criteria.
This works better for some people because you still only fill out one application, but have multiple chances to get approved. It’s not the same as “shotgunning” applications to every lender you can find (which creates hard searches on your credit file) that can worsen your score.
A good broker does a soft search first to find the right lenders based on your application, and then proceeds once you’ve agreed to a deal.
Banks use automated credit scoring for finance applications. If your score falls below a threshold, the algorithm says no, end of story.
The size of your income, whether your financial problems are behind you, whether you’ve been in a stable job for a few years – none of that matters.
Specialist lenders, the kind that work with brokers like us, look at your application differently.
They’re more interested in affordability now rather than your credit history.
These lenders look at what you can realistically afford to pay each month, your income vs your outgoings, and whether the numbers work without putting you under pressure.
This is particularly relevant for people looking at no deposit car finance or financing with active financial difficulties such as a CCJ or an IVA.
Because we work with a panel of lenders, instead of just one, it can create a bit of competition, which can work in your favour. If two lenders are willing to approve your application, we can identify the better rate.
Over a 48-month agreement, a small APR difference can add up. Say you got a rate of 19% compared to 29% on a £7,000 loan, you’d save about £1,000 over the term.
All that isn’t to say that direct lenders aren’t good. They are and, for a lot of people, they have advantages. The biggest being pre-approval.
Going directly with a lender means you can get finance approval for a car before you even visit a showroom, so you can walk in knowing exactly what you can spend.
From a headache perspective it just means you’re not trying to negotiate a better deal on your car and your finances at the same time, and you’re not waiting on an approval that risks someone else buying the car you want while you’re sitting around waiting.
You can also, usually, be approved a lot faster with a direct lender. This is because you’re dealing directly with the company lending you the money so there are fewer steps and no-one else involved in the process.
To some people this is what they want and to be honest if your credit history is only slightly poor you might still get a pretty competitive rate from a direct lender
The problems usually come when your credit history is too poor for a direct lender to approve you at all, or you’re looking at a premium to get your finance.
Once this starts to happen the simpler application becomes less attractive as the cost goes up.
When you think of bad credit lenders, you’re probably not thinking anything good. Most likely you’re thinking sky high rates, aggressive terms, limited transparency and deals that people find it hard or impossible to get out of.
The market did earn this reputation originally.
But the specialist lender market is a lot more mature and reputable now, and many lenders now work with FCA regulation, clear affordability assessments and structured, flexible, repayment terms.
They’re not payday lenders offering car finance.
They’re lenders who’ve built business models around borrowers like you who’ve had some financial difficulties and offer pricing models that reflect risk honestly, not just worst case scenarios.
This matters if you’re in a more complex situation, like:
With access to a lender panel, a broker can match your profile to the lender most likely to offer you finance at the most competitive rate.
When borrowing money there’s always some risk attached.
With direct lenders it’s usually self-inflicted when you apply for finance one after the other. A hard search on your record is created every time you make an application and multiple hard searches in a short space of time can be a sign of financial distress in the eyes of some lenders.
Which then makes approvals harder or can push your rate up. So if you’re going down the direct route, pick the lenders most likely to approve you, and apply once.
With brokers, the biggest issue tends to be around transparency and commissions. Not all brokers are the same but some do get more commission from certain lenders and can present those more preferentially.
But under FCA rules, brokers have to tell you about commission arrangements if you ask them. So be sure to ask.
Something else to think about, brokers arrange finance, they don’t lend to you.
So you should understand who it is you’re entering into the agreement with.
There’s nothing wrong with using a direct lender for your bad credit car finance.
If you’ve got a lender with a good reputation who’ll give you a fair rate and whose lending criteria fit your affordability there’s nothing wrong with going ahead.
But brokers are here for a reason. You get access to a wider market, you get more comparisons and if your broker works with genuine lenders, rather than mainstream banks, it puts your finance application in front of people who look for ways to say less, rather than just defaulting to no.
If you’ve got a complicated credit history, choosing between a lender and a broker can often be the difference between getting finance for your car, and not.
Check your eligibility with Concept Car Credit and we will tell you what we can do for you, with no impact on your credit score.
22 July 2019 Concept Car
