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  • January 15, 2021

What IF You Want to Finance a Car and You Have already in Debt?

As you know, there are three ways to finance a car, and each of them requires you to meet specific eligibility criteria. Car loans are secured loans, and the second-largest debt people take on after a mortgage. It means you tie yourself with a long-term loan, and when you fail to repay your debt, you will lose your car as well as credit score. When you have a couple of debts, taking out a new loan is not a wise idea at all.

In fact, various lenders turn down your application for a small loan when you have multiple debts to pay, let alone car loan. Affordability is the most crucial factor. If the lenders suspect that you cannot manage to pay off the debt when you have other accounts to settle down, they will not sign off on your loan application.

If you are looking to finance a car, you must be free from all debts. However, sometimes this scenario is not possible with you. In such a situation, you have got a lot of work to do before that.

Check your credit score

Even though a few lenders do not mind accepting applications from bad credit borrowers when it comes to financing a car, it is understood to know that they will definitely approve your application. If your credit score is extremely poor, it will be hard to qualify for the loan even though you currently have no debt to handle.

Your credit report reflects your financial commitment. A poor credit rating shows that you do not keep up with your payments. Before you apply for a car loan in Ireland, check your credit score first. If you find that it is extremely poor, you should try to improve it first – at least make it to the level that seems acceptable to the lender.

Know the level of debt you are in

You should know the level of debt you are in. Most of the people do not bother about it and put in the loan application. This results in disapproval, and as a result, they lose their credit scores. You can likely get the approval for a car loan from a few loan agencies in Ireland, but that happens only when they are not sceptical about their repayments.

It means this is not a severe concern if you have some outstanding dues at the time of taking out a car loan as long as you can manage to keep up with repayments throughout the term. If you are juggling with multiple debts, try to pay off a few of them.

For instance, pay off credit card bills and bad credit loans. This will not only release you from debt burden but also improve your credit score, making your chance of qualifying for the loan at better interest rates.

Smartly handle your debts

It is always suggested that you be free from all types of debts when you take out a car loan. If you have both car loans and other debts to pay off, you need to handle your finances smartly to keep up with repayments.

If you fall behind a repayment of the car loan, you will likely lose it, or if you fall behind repayments of other debts, the cost will quickly add up. It is worse when you lose your job, or you come up with unforeseen expenditure.

This is why you should prioritise your debt over financing a new car. No matter how much debt you have taken on, pay it off before taking out a new loan including a car loan. If it is difficult to remember the due date of all loans, set a reminder.

Use apps that can notify you when your payments are due. If your account is set on regular automatic payments, make sure that your account has enough balance before the due date comes.

Car financing is not a good idea when you have other debts. Even though you have a good credit rating, buy a new car on loan can be expensive and risky. If you qualify for a personal car loan despite other debts, you will likely have to cash it out to pay your lender.

However, not all the time, you will have this option. The car’s value drops very quickly. It loses its 30% of the value as soon as you get it out of the showroom. The salvage value may not be enough to settle the debt. If your car is secured, the lender will repossess it to recover their amount, and your credit score will go down. So, take stock of your current and futuristic financial condition before financing a car.

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