In the UK, acquiring a car on finance is a popular choice for many consumers. It enables individuals to purchase a vehicle by making monthly payments over a set period, rather than paying the full amount upfront. There are various finance options available, with the most suitable one often depending on the individual’s credit score. Here, we explore the key differences between bad credit car finance and regular car finance.
1. Interest rates
One of the most notable differences is the interest rate applied. Regular car finance, available to those with good credit scores, often comes with more favourable interest rates. This is because the lending institution sees such individuals as low-risk.
Conversely, bad credit car finance, designed for those with a poor credit history, usually comes with higher interest rates. Lenders see individuals with bad credit as higher risk, and so, they charge a higher interest to compensate for that risk.
💡 Read more: Can bad credit car finance lead to higher interest rates?
2. Loan approval process
With regular car finance, the approval process might be smoother and quicker, given the applicant’s positive credit history. In contrast, those seeking bad credit car finance might face stricter scrutiny, requiring additional checks or documents. Some specialised lenders or brokers cater specifically to bad credit applicants, but they might ask for evidence of income or seek guarantees.
3. Loan amount
Typically, those with a good credit score might be approved for a higher loan amount in regular car finance, allowing them to access more expensive cars. On the other hand, bad credit car finance might come with a capped or lower loan amount, limiting the choices of vehicles available to the applicant.
4. Down payment
A down payment, or deposit, is often required when taking out car finance. For regular car finance, the required down payment might be lower due to the perceived lower risk. However, for bad credit car finance, lenders might ask for a larger down payment to offset their risk.
5. Terms and conditions
The terms and conditions for bad credit car finance might be more restrictive than those for regular car finance. This can include tighter conditions on early repayment, fees for missed payments, or stipulations on car insurance levels.
6. Duration of the loan
Regular car finance agreements might offer longer repayment periods, making monthly payments smaller. However, bad credit car finance agreements might be for shorter durations, resulting in higher monthly payments.
7. Resale restrictions
Some bad credit car finance options might come with stipulations regarding the resale of the car before the end of the agreement. These can be more restrictive than regular car finance.
In conclusion, while both bad credit car finance and regular car finance serve the purpose of enabling consumers to purchase a car through monthly payments, the conditions under which they are provided differ substantially. It’s always crucial for potential buyers to understand these differences and consult financial advisors or institutions to ensure they’re making informed decisions suitable for their personal circumstances.
💡 For more information: How bad credit scores affect car finance.
