Can I get car finance if I’m in a debt solution or bankrupt?
First a question – does this sound like you? You’re in the market for a new car and you know you’re going to need finance to pay for it. But you’re worried you won’t be able to get any because you’re in a debt solution, or you’ve been made bankrupt.
If you recognise yourself, this blog will answer many of the questions we think you’ll have. So let’s get on with it.
How will being in a debt solution, or bankrupt, affect my chances of getting car finance?
If you’re thinking of applying for car finance while you’re in a debt solution or bankrupt, there are a couple of things you should consider before taking the plunge. The first is to understand how it affects your credit score.
How does being in a debt solution affect my credit score?
When you accept credit, like your credit card or a personal loan, you agree to a monthly payment, on a certain date. If something happens, as it often does in life, and you’re not able to make your payments, your creditor will contact you to find out what’s going on.
They’ll do this a number of times before starting to send you letters saying that defaults will be put on your file, which will damage your credit score. Eventually, you'll been summoned to appear in court. When this happens, it’s usually time to do something about it.
At this stage you can take out a debt solution or, if your debt level is much higher, think about bankruptcy. If you decide that one of these options is the best way forward, your credit score will be damaged further as a result. If a debt solution is your best way forward, your score will be slightly less damaged than if you're made bankrupt, and both will stay on your file for at least six years.
Next, it’s useful to know why your credit score is important when you apply for car finance.
Why is my credit score important when I apply for car finance?
When you apply for credit directly to the lender, or through a broker company, like Zuto, they need a way of assessing how much of a risk it is to lend to you. That’s what they use your credit history for.
When you make an application for credit, the lender will access your credit history to check how good you are at paying on time and in full. As well as looking at your credit history, lenders will also use their own list of criteria to decide if they’re happy lending to you. If you pay the right amount when you should, you'll have a great credit score. This not only means access to finance, but the best deals too.
However, if you have a less-than-perfect history, and you've opted for a debt solution, or bankruptcy, it will affect your application for credit. How depends on what solution you entered into.
How does being in a debt solution or bankrupt affect my application for car finance?
This part will be split into two, simply because there are two answers to the question, depending on your situation. First we’ll cover debt solutions.
As we’ve already mentioned, if you’ve defaulted on payments and you're in a debt solution, your credit score will be damaged – there’s really no getting away from that. But it doesn’t mean the end of your dream of getting a new car on finance. There are some companies, like Zuto, who specialise in finding car finance for people with a credit score that's on the low side. So even if you find yourself with a very poor credit score, you'll still be able to apply.
Now let’s look at what happens when you’ve been made bankrupt.
If you’ve been made bankrupt, the rules are a little different – there’s an upper limit to how much you’re able to borrow. You are only able to ask for £500 credit, in total, while you’re bankrupt. And you must declare that you are bankrupt to the person you’re applying to borrow from too. So, in short, you can't apply for car finance if you’re still bankrupt.
Once you’re discharged, which is usually after a year, there’s nothing stopping you from applying then. But, your credit score will be low, and that means it will be difficult to find a lender and access the best rates – at least until your credit score starts to improve.
Okay, that’s how car finance, debt solutions and bankruptcy work. If you’re in this situation and you still have questions, call us or drop us a line.
If you’re currently in a debt solution, you may want to know how you can improve your credit score, once you’re in a position to start applying for finance again.