Although the three-digit credit score is not the be-all and end-all for a lender to decide whether or not to sign off on your car loan application, the number can make a difference between good deals and bad deals. You should aim for excellent categories to get the most attractive interest rates. However, a majority of people, according to Experian, fall into the fair category, which may sound good as long as you do not delve into the rates you are being charged.

According to a report, you are most likely to get a loan at the lowest possible rate for just 4.5% when your credit rating is excellent, but once your credit score is classified as fair, it will immediately jump to 30.5%. It is vital not to be under the impression that you can qualify for lower interest rates than bad credit borrowers because your credit rating is fair.

Every credit reference agency has a unique scoring model, and surprisingly, lenders use their own method to calculate your score based on the information recorded in your credit report. It hints that some lenders may turn down your application while others may accept it, but interest rates will be high.

Ways to find a car finance deal when your credit score is not up to scratch

Here are some of the tactics to get the best car finance deal when your credit file has a record of missed payments:

• Check your credit score

As you come to know a lender who is willing to loan to bad credit borrowers, you immediately fill in the application form and apply for a car loan. You do not even bother to give a second thought to far-reaching consequences if you are turned down.

Instead of acting so precipitously, you should check the bare minimum score that your lender accepts. Your lender might not accept those with less than 600 scores, and you may have 550. Of course, applying to such a lender will lead to a rejection. Hard inquiries will worsen your credit rating.

• Look for errors in your credit file

What if your credit report shows a record of some accounts that you never opened? It is not unusual to have unidentified accounts in a credit file. It is a case of identity theft. Make sure you keep checking your credit report every so often so you nip it in the bud.

Credit reference agencies take some time to fix the issue. Check your credit file months before you have to apply for a bad credit car finance deal in Ireland.

• Put down a larger deposit

A deposit is a must to get the nod for a car loan. 10% of the sticker price of your car is required when your credit score is up to par; otherwise, your lender would expect you to arrange a bigger deposit. Most lenders expect you to put down at least 20% of the car’s value upfront.

It is not necessary to stick to this large size of down payment. If you have the potential to pay more upfront, you should. The lower the loan amount, the better deal you will get. Aim to put down at least 40% of the deposit size.

• Arrange a guarantor

Having a guarantor with a good credit score can help improve your chances of getting a bit more affordable deal because it mitigates the risk of your lender. They can call in on the guarantor to clear the dues if you make a default.

However, having someone acting like a guarantor is not a cinch because missed payments will lower their credit score, too, even if they settle the debt on your behalf. You can try to apply for a joint car loan. Car loans for bad credit in Ireland may be available at lower interest rates if you apply with a co-applicant. However, the co-applicant should have a good credit rating. Remember that you are both responsible for the settlement of the debt. A lender can ask the other to clear the dues in full if one of you refuses or fails to meet your obligation.  

• Choose not to owe any money at the time of application

At the time of taking out a car loan, you should avoid having any outstanding debt. Your credit rating is already bad, and on top of that, if you are under debt obligations, it will be looked at as a red flag. Lenders will mistrust your repaying capacity, and therefore, they may either turn you down or charge very high interest rates.

You should be free from any sort of debt for at least one year before applying for a car loan. Your credit report should not show the inquiries of small emergency loans as well, such as payday loans, in that time period. Their presence on your credit file can lower your chances of getting the nod whether or not they are settled.  

• Have a strong income source

You can offset the impact of your poor credit history by showing a stable income source. If you are earning a good amount of money, your lender might offer you a bit better deal. However, this is only possible when you are free from other debt obligations.

• Compare interest rates

Do not set your heart on a specific dealer or lender even though you have a great relationship with them. A rule of thumb says that you should carefully compare interest rates and associated fees to ensure that you are not getting an expensive deal.

Get a pre-qualifying letter from lenders to know the estimated rates they will charge. You do not need to be afraid of losing your credit score, as no hard inquiries will be made. However, remember that the actual rates will be higher than the pre-qualifying rates.

The final statement

Although there are some ways to qualify for a car loan despite a bad credit rating, it is still suggested that you improve your credit score before applying for it.