18 August 2023 Concept Car
Negotiating car financing with a low credit score can be challenging.
Lenders consider credit scores as an indicator of your creditworthiness. A low credit score suggests a higher risk of defaulting on loan payments. As a result, many traditional lenders may be hesitant to offer favourable financing terms or may even reject your loan application altogether.
As a result, you’ll have fewer lenders to choose from. This, in turn, severely reduces the options available for negotiation.
Not necessarily. We’ll explain in a second why you should definitely not give up hope or be too pessimistic.
Be prepared, however, that your deal may not be quite as good as you might hope. The following are typical for a bad credit car loan:
Higher interest rates: If you manage to secure financing with a low credit score, lenders often compensate for the increased risk by charging higher interest rates.
Stricter requirements: Lenders may impose stricter requirements, such as higher down payments or additional collateral, to mitigate the risks associated with a low credit score.
Generally speaking, with a low credit score, you will have far less leverage during negotiations when it comes to lower interest rates, longer repayment periods, or other favourable conditions.
By no means, however, does this mean that there is no room to negotiate at all.
Buying a cheap car: Strategies that work
For one, the mere existence of specialised lenders indicates that you can pay off a loan perfectly well with a low credit score as well. How does this work? At CCC, for example, we simply consider other factors, such as income, employment stability, and down payment amount, alongside credit history.
We take into consideration a stable employment history, a history of on-time payments for other loans, or a positive relationship with the bank. If you can demonstrate financial responsibility and stability despite a low credit score, it will increase your chances of negotiating better financing terms.
Finally, selling cars is a volume business. Even the most strict dealerships can not afford to accept perfect-credit-score-applications only. Don’t be ashamed of your score, but enter negotiations with your chin held up high!
You could pretend that your finances are better than they actually are, and aim at a really low interest rate and great conditions. Ultimately, of course, the dealer will find out either way and you may end up with no deal at all.
Or, you could discuss your low credit score with the dealership and decide to remain open and honest about it. Being honest doesn’t exclude advocating for yourself, after all.
In the next sections, we’ll go into some of the points you can concretely make to improve your chances of a successful negotiation.
Why haggling is a mistake (and what to do instead)
Being able to understand the factors that led to your low credit score can make a huge difference for a potential lender. Credit scores are incredibly useful precisely because they are so condensed. But this compression of your financial life story into a single number comes with its risks, too.
If you can provide a satisfying explanation about the circumstances that contributed to your credit score, you can provide valuable context for the dealership.
It is important to understand that both dealers and financial institutions are made up of humans, too. They are well aware of the fact that life is unpredictable, and temporary setbacks can happen to anyone. Whether it was a job loss, medical expenses, or other unforeseen circumstances, it’s essential to be open and honest about these challenges.
By explaining the temporary nature of the setback and their impact on your credit history, you can help the dealership understand that your low credit score does not necessarily reflect your long-term creditworthiness.
Unemployment can create financial strain and affect credit scores. To examine just how severe the effects can be, let’s take a look at an example.
Let’s imagine you had a stable job and a good credit score until you faced a six-month period of unemployment due to industry layoffs. Assuming the current market average interest rate for car loans is 5%, your lower credit score might result in an interest rate of around 8%. On a £20,000 car loan with a 60-month term, this difference in interest rates would result in an additional £2,228 in interest over the life of the loan.
The higher interest rate will furthermore directly affect your monthly payments. With an 8% interest rate, your monthly payment would be approximately £407. However, if you had a better credit score, unaffected by unemployment, and secured a 5% interest rate, your monthly payment would be approximately £377.
It may not seem like a lot. But this £30 difference in monthly payments can impact your budget more than you’d think. And, to be frank, as your score drops really low, the interest rate is likely to rise well beyond just 8%.
Unemployment is not the end, however. We’ll get to the steps to negotiate a better deal in the final section of this article.
Having a low credit score doesn’t mean your entire financial profile is negative.
By emphasising positive factors that offset the impact of your credit score, you can present a more comprehensive picture of your financial stability. One essential piece of the puzzle is showcasing a stable employment history.
In the previous section we explained just how costly a former or current phase of unemployment can be. Vice versa, stability will conversely give you a much better negotiation position.
If you have held a consistent job for an extended period, emphasise this to the dealership. Explain the length of your employment, any advancements or promotions, and the reliability of your income. This information can help the dealership recognise your ability to meet financial commitments despite your credit score.
You don’t need to be rich to get a loan. What matters to the lender is simply that you won’t default on the loan and that you won’t take too long to repay it. As long as you can meet these conditions, you should be fine.
This is why, if you should have a steady income from sources such as regular employment, self-employment, or investments, you should make sure to communicate this to the dealership.
Provide documentation to support your income claims and highlight the consistency of your earnings. This will help alleviate concerns about your ability to make regular loan payments.
Another aspect to consider is that your credit score may not reflect your payment history for all financial obligations. If you have a history of timely payments for bills, rent, or other loans, bring this to the dealership’s attention. Here, too, provide evidence, such as payment receipts or statements, to substantiate your claims.
Demonstrating your responsible payment behaviour can offset the negative impact on your credit score.
No, your credit score is not everything. But yes, rebuilding it is a powerful step towards financial stability and can positively impact your car financing options.
By demonstrating your commitment to improving your credit situation, you can convey to the dealership that your low credit score is not indicative of your long-term creditworthiness.
Here are a few suggestions to get you started:
Pay bills on time: Consistently paying your bills on time is a crucial factor in rebuilding your credit. Your track record may not yet reflect this, but you can start to make a change every day. Set up standing orders for recurring payments, set reminders in case you can’t foot a bill straight away and do everything you can to never miss a single payment ever again.
Reducing Debt: Taking proactive steps to reduce your debts can significantly improve your creditworthiness. One recommendation is to consolidate your debt as much as you can. If you have multiple credit cards, only keep your main one. And start paying off the debt with the most interest first.
Make sure the dealer knows about any debt repayment plans, debt consolidation strategies, or negotiations you have initiated.
How to improve your credit score
Down payments aren’t popular. Especially if your credit score is low, you may want to keep payments as low and your savings as high as possible.
This is why we feel it is particularly important to stress that when it comes to securing car financing with a low credit score, a larger down payment can make a significant difference in the negotiation process.
Are zero down payment auto loans a terrible idea?
There are several reasons why you should try everything at your disposal to reduce the overall loan sum right at the very beginning:
Absolutely. When negotiating car finance with a bad credit score, your choice of car model can play a crucial role in improving your chances of success.
Selecting the right car can help mitigate the impact on your credit score, increase your negotiating power, and enhance the likelihood of obtaining more favourable financing terms.
Let’s take a look at what to consider specifically in the following sections! At CCC, we have a vast selection of fantastic used cars to meet all preferences and needs. Take a closer look on our online showroom.
Choosing an affordable and reliable car model can strengthen your negotiating position.
Speaking more concretely, reliability means low maintenance costs, and reasonable insurance rates. It means less technical gadgets and a focus on the core aspects of the driving experience.
Reliability is not subjective. Several magazines and institutions conduct large-scale studies each year and have done so for years, sometimes decades. This allows you to get a pretty precise picture of which models, brands and generations are best when it comes to reliability.
By awarding preference to this, you demonstrate to the lender that you are making a responsible choice and reducing the perceived risk associated with financing the vehicle.
Exploring used car options is highly advantageous when negotiating car finance with a bad credit score.
Used cars have far lower purchase prices, reducing the loan amount required. With a smaller loan, lenders may perceive the risk to be lower and may be more willing to offer better financing terms.
At the moment, used cars are relatively expensive and you may have seen headlines claiming that some of them are actually more costly than a comparable new model. This is mostly exaggerated. If you’re willing to wait for a good deal, a second hand vehicle will always be more attractive financially than a new one.
It will help to research the resale values and depreciation rates for all of the cars potentially of interest to you. This makes sense because some car models retain their value better than others. Cars with a higher depreciation are ironically more interesting than those with a low one – because they’re cheaper to buy used!
During negotiations, showcase your understanding of the total cost of ownership for the chosen car model. This includes factors such as fuel efficiency, insurance costs, maintenance expenses, and potential repairs.
By demonstrating your knowledge of these costs and how they align with your budget, you can alleviate the lender’s concerns about your ability to afford the vehicle and make timely loan payments..
Negotiating a good car finance deal is not just about hard facts. It is also about communication. Some might even say, it is foremost about this.
We should caution against getting your hopes up too high. Even if you’re a great communicator, you won’t convince a salesperson that you’re worth an investment just because you have the gift of the gab.
However, we do believe that you can gain a lot from adhering to the following points:
Building rapport is a critical aspect of successful negotiations. When engaging in car finance negotiations, establishing a positive and trusting relationship with the dealership staff can greatly enhance your chances of reaching a positive outcome.
It sets the tone for the negotiation process.
Smile, make eye contact, and use a warm tone of voice. By initiating the interaction on a positive note, you lay the foundation for a more productive and collaborative negotiation experience.
Active listening is a powerful rapport-building tool. Show genuine interest in the other person’s perspective by listening attentively to their statements, concerns, and questions. Ask open-ended questions to encourage further dialogue.
These are not theoretical concepts. They will actually make a difference. By going into the negotiations with an open mind, you are allowing yourself to discover shared interests .
Consistency is absolutely crucial in establishing trust.
What we mean by this is simply to follow through on your commitments and promises during negotiations. Be reliable, transparent, and honest in your communication. Don’t change course midway or aggressively leave the showroom to make a point.
By demonstrating consistency and integrity, you build trust with the dealership staff, enabling more open and constructive communication.
Clearly articulating your objectives and priorities during car finance negotiations is key to a successful outcome. By expressing your goals with clarity and precision, you set the stage for a more focused and productive negotiation process.
Here’s how you can put this goal into practice:
Car finance negotiations can sometimes become intense and emotionally charged, particularly when dealing with a bad credit score. It is crucial to maintain composure and calmness throughout the negotiation process.
By staying composed, you can think clearly, make rational decisions, and foster effective communication.
A key part of this is to control your emotions. Stay mindful of your emotional state and practice self-awareness. Recognise any signs of frustration, anger, or impatience and consciously choose to remain calm and composed.
Taking a deep breath, counting to ten, or mentally stepping back can help you regain control and approach the negotiation from a more balanced perspective.
Remaining professional and remaining calm are pretty much the same thing. It will make you seem like you’re in control the entire time and allow you to take rational decisions.
Certain communication techniques can prove to be helpful here:
Without a single doubt, this is one of the most under-appreciated aspects of any conversation with a lender.
During negotiations, it’s easy to get caught up in small details or moments of tension. However, it is important to stay focused on the bigger picture and your ultimate objectives.
Remind yourself of your financial goals, the importance of securing a favourable car finance deal, and the potential long-term benefits. By maintaining perspective, you can prevent minor setbacks or challenges from derailing the negotiation process.
By embracing flexibility and finding mutually acceptable solutions, you can foster a collaborative negotiation environment and increase the likelihood of reaching an agreement.
Negotiation is a give-and-take process. Recognise that compromises may be necessary to reach a mutually acceptable agreement. Understand that achieving all of your desired terms may not be feasible, and consider the overall outcome rather than focusing on individual demands.
One way to do this is to explore different scenarios. Consider alternative terms or options that may be offered by the dealership. Analyse how these scenarios align with your objectives and financial situation.
I will also help to seek win-win solutions that benefit both parties. Look for opportunities where both you and the dealership can achieve your objectives or gain value from the negotiation outcome. Emphasize collaboration rather than competition.
Negotiating a car deal with bad credit can be a daunting proposition. But it doesn’t need to be.
At Concept Car Credit, we want the experience to be smooth and pleasant just as much as we want you to be able to afford the deal.
Our team is here to help. Get in touch now if you’re looking for a great used car.
Call us at 0800 247 1015
or use our contact form for a free quote.
18 August 2023 Concept Car