Still, we’d like to argue that things are a lot harder if you have no money and no savings instead of being rich. Even some of the simplest things can turn out to be excruciatingly difficult. Things like getting a car loan, for example.
If you find yourself in a situation where you have no decent income, no cash on your bank account and no savings to speak of, it is easy to lose faith.
In this feature we take a look at what you can do to get behind the wheel again – regardless of your financial situation.
How bad are things really?
Before we get into the nitty gritty, however, you need to do one important thing first: Check to see how bad your credit rating really is.
Very often, we will have customers visiting our showroom who will tell us all about their atrocious credit score. When we actually check it, it will frequently come back as average or just ‘below average’ at worst.
As you can imagine, there is a huge difference between a below average credit rating and a truly bad one. Whereas you should usually be able to secure a car loan with the former without any problems, things can get a lot harder with the latter.
This is not to say that there aren’t very bad or even hopeless scores
There are! What we’re saying is this: Don’t give up hope before you have a realistic view of your situation. You can check your credit rating for free at all major rating agencies, so it won’t even cost you a penny.
If you’re curious about what your credit rating means, you can read more about it in our expansive feature. In it, we give you a bad credit rating definition which should clear up all your unanswered questions.
The car finance market has evolved
Looking at the news, it can sometimes seem as though the world is caught in a downward spiral. Everything is becoming more expensive. Incomes are dropping. Jobs are increasingly insecure. Economies are shakey.
This makes it easy to forget that there are positive developments, too. One of them has been the diversification of the market for car finance.
There have never been more options when it comes to car finance. PCPs have made it possible for thousands of financially weak customers to drive high class new vehicles at a reasonable price.
Add to this that the traditional car loan has become more flexible. You no longer need to be a dream candidate to get a decent deal. Loans with very long term durations, no downpayment options, low monthly payment schedules are all now part of your options.
What this means for you: Chances of finding a solution that meets your specific needs has become easier than ever before. Add to this one important fact:
Things may not be as bad as you believe them to be.
When things are tough, it’s easy to become a pessimist. Still, don’t let your dire situation drag you down. Very few people truly have no money and no savings whatsoever.
Even if you’re saddled with debt, you’ll usually have at least some form of income to pay for your daily expenses. It may not seem like a lot. But in the end, there is a huge difference between complete bankruptcy and a truly bad credit rating.
It is also vital to understand that lenders will have an entirely different perspective. This is why you will occasionally get rejected for a loan despite decent credentials. And it is also why you may get accepted although your credit rating is pretty bad.
So what are lenders interested in?
At the most basic levels, lenders simply want to generate a nice profit and make sure they’ll get their money back. They also strongly dislike any hassle. This would include having to send out reminders for borrowers who don’t pay back their debt in time.
At the same time, lenders will need to accept a certain degree of risk. The real world doesn’t provide any absolute certainties. And if they would only accept clients with a perfect credit rating, they wouldn’t be making any money.
So don’t go in there thinking you don’t have a chance. In reality, lenders need all kinds of clients, even those with a patchy track record.
What you need to convey is that you will get them their money with reasonable certainty.
Here are a few concrete points you should take into consideration:
- Most lenders are not interested in whether or not you’ve had some sort of financial difficulty in the past. Most of us have. Don’t worry too much about one or two missed payments. What matters to them is whether or not you’ve defaulted on a loan before.
- We all have some form of debt. If only to pay back a mortgage. Again, the perspective is what counts: How high are your debt repayments in relation to your monthly income? How easy or hard is it for you to meet your goals?
- When applying for a bank loan, managers will often ask if you have savings. This is because savings can help you bridge difficult times, e.g. if you temporarily have no fixed income. They are not a precondition for a loan, however.
- The main factor for getting a car loan is your income. You don’t need to be rich, but without at least some sort of dependable cash flow, applying for a loan is going to be hard. Even a low wage need not be an issue. What counts are your monthly expenses – the less you need, the better.
As you can see, lenders are often taking a far more positive approach than you’d expect. The lesson is clear: Don’t spend more than you can afford. But don’t take a more negative view than you need, either.
Dealers – from problem to partner
Car dealers don’t enjoy the best reputation. Probably rightly so. For decades, they have been bullying customers into buying more than they need and tricking them with fine print. If more and more people are now buying their car online, eschewing the traditional dealer system, dealers only have themselves to blame.
Thankfully, the industry has learnt its lesson. Today, dealers may well be your best partners, especially if you have very little money and next to no savings.
Why is this?
The reason for this change is twofold:
- Conventional lenders, such as banks, have made it increasingly harder to get a car loan.
- Dealers can act as intermediaries between banks and buyers, creating unique win-win situations.
Let’s say you want to buy a car but can not pay for it in cash. A bank may flatly reject your application. By going through a dealership, however, you can significantly improve your chances of success. You may even get a pretty decent rate. This is because the dealership is a more trustworthy borrower for a bank than you are. As a result, you can get a deal at excellent conditions even if your financial situation is anything but perfect.
Also, lenders have more to gain from enabling a car loan than a bank. After all, they’re also selling you a car and, potentially, repair services in the future. Often, they’ll also want your old car as a trade-in. All of this means that they’ll do everything in their power to get you to drive.
No money car finance strategy #1: A little more
The good news, then, is that if you work together with your dealer, you stand a pretty good chance of getting a car loan even with a bad credit score. You will, however, come up with a strategy. Here are some of the best recommendations to support you in that goal.
First of all, you’ll need to be prepared to pay a little more. Even though dealers are willing to work with you, the basic principle of lending is still intact: The higher the risk of defaulting, the more expensive a loan will be.
So, even if you can get a car loan with a bad credit rating, you will need to pay more for it than someone with an average or a good score.
Don’t let this discourage you, however. There are a few steps which can help you pay for a loan even though it may be more expensive than you’d like it to be.
No money car finance strategy #2: Focus on the downpayment
Step one consists in a perhaps confusing recommendation: Focus on making the downpayment as high as possible.
You may ask yourself: How can I make a downpayment if I have no money and no savings?
As we already pointed out, however, unless you are truly bankrupt, you should have at least a very small income. So what we recommend is simply to use that income to build up towards a notable downpayment.
Downpayments have fallen out of grace and some dealers no longer require them. This is not necessarily in your favour. The higher the downpayment, the lower your monthly payments can be. Also, downpayments reduce the risk of a complete default, and therefore make the car loan cheaper.
It may take you a few months before you can make a downpayment. If you have that much, however, it is time well spent.
No money car finance strategy #3: Longer term durations, lower payments
The usual expert advice for car loans is to keep the term as short as possible and monthly payments as high as possible.
That’s a perfectly reasonable strategy if you have all the money in the world. However, if you have very little money and savings, it’s far too risky. Instead of saving a few Pounds, you should instead make sure not to default on your loan. The best way to do this is to keep your monthly payments as low as possible. Yes, it will make the loan more expensive. But it will also make it safer and more realistic to pay off.
In the end, that security is worth a lot more.
As we mentioned, dealers have turned into your best partner. At CCC, we have already helped thousands of people who thought they would never be able to drive again. Browse our selection of cars in our digital showroom. Or drop by our Manchester store – we’re looking forward to your visit!