We can make car finance more helpful and meaningful when we understand we don’t want to hurt our credit score with it. Contrary to popular belief, car finance does not hurt credit scores, but it has the potential to improve it.
This is where many people often misunderstand the real value of car finance. A credit score is but a number that defines how you are managing your credit card and the payments made by it.
Your credit score thus stands as an indicator of whether or not you are managing your credit card payments at the right time and sufficiently. Good credit card management will offer you a good credit score. A bad credit score means the exact opposite. And if you are in need of car finance, then you will obviously think that it is going to affect your credit score because you are borrowing money.
Why Car Finance May Not Affect Your Credit Score
When you are taking out an option of car finance, and you know that it is an option when money is credited to your account by the lender, then it is obvious that you will think that the credit score is going to get affected. If that is what you think, then you need to change your views. A loan may help you deal with the whole deal of car purchase more effectively. This factor may as well help you to make improvements in your credit score.
With that being said, a car loan can also make a bad credit score a good one. For example, borrowers these days with poor credit score prefers bad credit car finance from Ireland based direct lenders to solve the issue of a low credit score faster and better.
Now that you know that an unsecured car loan for bad credit may fix your credit score, we can go ahead and discuss the car finance mistakes you have to avoid to save that score.
- Mistake 1: Not Knowing How Much You Can Afford
Always remember that you should not sign up for the thing that you cannot manage. You can keep motivation for other times. If you save today, then you may invest more someday later. When a borrower takes out more money than what he or she can afford as a car loan, then the entire balance becomes disturbed. It is natural for the borrower to miss repayments or fail to make full repayment of the loan. This factor can worsen the credit score even more.
Instead, using a loan calculator is the simple way to find your loan affordability. Any unsecured loan will work according to your income status. You have to find out whether or not you can make the periodic instalments set by your lender for repayment using your income. A loan calculator is a fantastic tool to find it. You may check your loan affordability using more than one repayment term you come across.
If required, do not hesitate to make a conversation with your lender about affording the loan. It will give you clarity in determining the amount. You may also end up getting more than one loan offer.
- Mistake 2: Hard Credit Check
Although this is not a mistake from your side, you may get to face this issue if you have not updated your credit score and offered your lender with evidential support for your income schemes.
Lenders want a steady repayment term with the amounts of your income clearly mentioned with ‘live’ evidence of it. If you want to get a loan in easy terms, then your lender must know your income details, your employer’s name, and proof of your recent earnings.
Added to that, a credit score update is also required. With a fresh credit score, you can provide your lenders with the correct and latest information on your credit card management. It helps the professional to offer you the right kind of loan products.
If, however, these steps are not done, then it means your financial information is murky. And that means you might be a risk to the lenders if they lend you money for buying or maintaining your car. This matter is more important for bad credit car finance in Ireland because car finance involves a good deal of money.
Under these circumstances, your lenders will prefer to make a hard credit check. It might affect your credit score.
- Mistake 3: Defaulting Your Loan or Missed Payments
No one wants to miss payments or default on a car loan.
However, situations might compel one to face these issues. Since untimely payments or no payment at all stay in the credit records, they can affect your credit score.
This is why making timely payments is important. Before that, the loan affordability test does make sense.
But there might be exceptions to this situation. What if you take out car finance and face a sudden financial issue or a financial emergency? In that regard, you need to talk to your lender for alternative ways to repay the loan.
If you see this coming before taking out the loan, i.e. before applying for it, then you may consider a guarantor. This kind of loan may save you from loan defaulter charges and can also give you the mental peace to actually not miss your instalments.
Keep in mind that the private money lenders in Ireland provide more than one repayment package with an option of car finance. Check them out and use a loan calculator to find the one you need. We are one of the private lenders. You can say we are quite friendly if you need our assistance. Just phone us or write to us to get in touch.