Bad credit van finance: how to buy a van if you have a poor credit rating
What is bad credit van finance and should you consider it?
If you’re struggling to get finance for a new van due to your poor credit rating, a bad credit or ‘subprime’ van finance solution might be able to help you get the commercial vehicle you need. There are specialist lenders who may be able to help, although the terms of the deals available tend to be less attractive than those offered to buyers with higher credit scores.
Read on to discover what bad credit van finance is and how to get it, what your options are if you have a County Court Judgement (CCJ) or are self-employed, as well things you may want to consider before taking out a bad credit finance agreement.
A bad credit rating could be the result of a number of different things including a limited or poor credit history, outstanding debts, county court judgements or failure to make payments in the past. A bad credit score simply means that a lender will be taking a bigger risk by offering you finance on a van because your credit report suggests you might have trouble making payments.
Getting car or van finance tends to be much easier when you have a good or excellent credit rating, but it’s still possible to get finance if your credit rating is bad or poor. When it comes to commercial vehicles, it can feel like a catch-22 where you need a van to work but you need to work to prove you have the money to pay for finance. There are ways to get yourself out of this vicious cycle and buy a new van whether you’re a small business, self-employed or just in possession of a less than pristine credit rating.
What is bad credit van finance?
Bad credit van finance or subprime loans are intended for borrowers who have a bad credit history or who may struggle to meet a steady repayment schedule. Lenders who provide bad credit van finance often favour Hire Purchase (HP) agreements rather than a Personal Contract Purchase (PCP). HP agreements are generally more straightforward as you put down a deposit, followed by a series of monthly payments after which you own the van with no large payments at the end of the agreement. With HP, the loan is secured against the van, which means it can simply be taken away if you fail to keep up with payments. Once the contract is finished you own the vehicle.
HP agreements often have a higher monthly payment when compared to PCP because the cost of the vehicle is split evenly over the course of the contract. PCP contracts defer some of the vehicle cost to the end of the agreement and for someone with bad credit it might be harder to pay a lump sum, otherwise known as the ‘balloon payment, at the end.
How do you get bad credit van finance?
The actual process to get approved for bad credit van finance is the same as for getting any kind of car or van finance. You’ll need to speak to the dealer or a finance provider and work out what kind of options are available to you. They will then be able to help tailor the terms and monthly payments to suit your financial situation.
It probably makes sense to do some online research into what kind of finance deals might be available first. A credit check with one of the main credit check agencies is free and will give you your credit score Experian, Equifax or TransUnion and an online car finance calculator will give you an idea of how much you can borrow. Then it’s time to speak to find a vehicle and speak to the experts.
Can I get bad credit van finance if I'm self-employed?
When it comes to getting finance on a van, a poor credit history is one problem and being self-employed is another. If both apply to you, getting finance is more difficult but still possible.
If you’re self-employed you’re less likely to have a consistent income with evidence that you can show to a lender but if you can demonstrate a regular income at a level that can afford the repayments, you will have a much easier task. If you have poor credit history, there are lenders who specialise in self employed, bad credit finance.
When applying for van finance you’ll need to provide documents which will help with the application process. These items may include:
- Proof of income
- A proof of earning SA302 form from HMRC
- Proof of address
- A copy of your latest tax return
- Employment history evidence spanning the past three years
Can I get bad credit van finance if I have a CCJ?
Yes, it is possible to get bad credit finance if you have a CCJ, you might just have to go through a specialist broker.
To increase your chances of a successful application, you can also apply for van finance using a guarantor of either a family member or friend with a healthy credit record.
Should I avoid bad credit van finance?
Not necessarily. If you need a van to run your business but you are struggling to get finance because of a bad credit score, this type of finance might be a good option for you. As well as helping you to keep your business going, bad credit van finance can help to improve your credit score in the long run- as long as you’re able to make all your payments on time and complete the contract. This would make it easier in the future to get van finance and you will also own a van at the end of the deal that you could use to part exchange for a deposit on a better van.
With any type of finance it’s always important to consider whether you are able to afford the monthly repayments you are agreeing to. This is especially important to consider if you have a guarantor because if you are unable to make payments this will fall on them, or the lender may take your vehicle back. Bad credit van finance deals often have higher deposits and interest rates than other finance deals but many of the van buyers taking them out have no other option.
Should you get bad credit van finance? Things to consider
If you’re struggling to get finance you can look for ways to improve your credit rating such as registering for the electoral roll, paying off any outstanding loans or closing accounts that are linked to someone with bad credit.
To make it easier to secure finance you could ask someone to be your guarantor, this means they would be responsible for your repayments if you were unable to pay. However you must make them aware that this would have an impact on their credit rating if they were also unable to pay.
When applying for van finance with a low credit score, it’s important to remember that you may well have to put a bigger deposit down to lower your monthly repayments and that lenders often hike interest rates to offset some of the risk. Before signing any finance agreement, it’s important you fully understand the financial obligations you are agreeing to.
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