Being in receipt of benefits doesn’t mean that should miss out on getting a loan or car finance. Over 20 million people in the UK claim some sort of benefit income and in recent years it has been made more accessible to get a loan. Whilst it is never guaranteed that you will get accepted, there are a number of things that lenders look at to get you approved. Let’s take a look at the best way to get a car loan when receiving benefits.
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It’s not impossible to get car finance for people on benefits but there are a few ways in which you could be rejected. Finance lenders accept a range of benefits such as disability allowance, carers allowance, child tax credits, working tax credits, and personal independent payment. Your ability to get accepted can also be determined by your credit history and affordability but we’ll go into this in more detail.
Your credit score does play a part in your ability to get finance. Lenders will take a quick look at your credit score before accepting you. This is because they want to know that you can be trusted to pay back your loan on time and in full. If you have had problems in the past meeting your payment deadlines, then you may find yourself applying for bad credit finance instead. However, having a better credit score means you have more chance of getting approved. Good credit also opens you up to a better interest rate which reduces how much you pay overall.
Many finance lenders also look at your affordability to get you approved for finance. When you receive benefits, you will usually get a set amount of benefits each month. Lenders will want you to be able to prove the breakdown of benefits you receive so they can work out your affordability.
The most popular type of car finance for people on benefits is hire purchase car finance. Hire purchase is a straightforward car finance deal that spreads the cost of your chosen car into affordable monthly payments. You make monthly payments to an agreed term till the end of the agreement. Once the final payment has been made, you are the automatic owner of the car. This does mean that throughout the agreement, the lender owns the car and if you fail to meet your repayments, they have the right to take the car off you.
As mentioned, affordability is key when you take out a car loan. You should always only borrow what you can afford to pay back. If you are struggling to meet your repayments, you can contact your finance lender to see how they can help. Falling behind on payments can lead to CCJs, defaults on your credit file, and even bankruptcy.
There are a limited number of lenders who can help get finance on benefits. If you want to shop around for the best deal possible, you should try to stick to soft search applications only. Multiple applications for credit or finance in a short space of time can make you look desperate to get approved. If you want to shop around, you should stick to soft searches. They don’t affect your credit score and aren’t recorded on your credit file.
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