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How your credit score affects your car’s resale value?

Resale value

If you’re selling your car, it may come as a surprise to find that your credit history can have an impact on how much you make out of the deal. With a good credit rating, you shouldn’t have any problems. But if you have a low credit score, it’s a different story. And you could face further issues when replacing your car.

This post explains what you need to know about selling your car and buying a replacement if you have bad credit.

Problems That a Low Credit Score Can Cause When Selling a Car.

Selling your car privately almost always gets a better price than going to a car dealer. On the other hand, the dealership route can be a lot less hassle, whether you want to sell your vehicle for cash or trade it in to buy another car.

If you’re trading in your car to buy a new one and need additional financing, the dealer will check your credit history. A low credit score won’t impact the trade-in value of your vehicle but it can be more difficult to get an affordable auto loan at a reasonable rate of interest.

You can also lose out financially in other ways if you have bad credit and are selling your car. Dealers and savvy potential buyers will run a vehicle financial history check to discover whether there’s any outstanding debt on your car.

If there is, you may have to accept a low price for the car or the potential buyer may walk away from the deal altogether rather than take on the debt themselves.

Even worse, you may find the value of car is zero because it’s illegal to sell it.

Can I sell my car if it has outstanding finance?

Most new cars sold in the UK are bought with finance, and so are many second-hand vehicles.

If your car still has money owing on it, whether you can sell it depends on the type of finance deal you have and whether you own the vehicle legally. If you don’t have the right to sell it, it’s worth nothing in practical terms.

Common types of car financing include:

  • Personal contract purchase (PCP). With a PCP deal, the car stays in the finance company’s ownership, so you can’t sell it until you’ve settled any outstanding finance.
  • Hire purchase (HP). If you get a car on hire purchase, you pay a deposit followed by several monthly payment. You can’t sell the vehicle until the end of the agreement or you and the creditor end the contract early.
  • Leasing – personal contract hire (PCH). If you have a PCH deal, you can never sell your car. This is because you never own it; you rent the vehicle for an agreed period with monthly payments, with no option to buy it.
  • Personal loan. If you’ve taken out a personal loan to pay for your car, you own it outright so you can sell it anytime you choose. You’re still responsible for the loan until it’s paid off.

Other factors that affect the resale value of your car

Besides a low credit score and outstanding finance, other considerations come into play that can affect the resale value of your car.

  • Cars depreciate in value quickly. A brand-new car typically drops in value by 10% to 15% a year.
  • Manufacturer’s reputation. Cars from some brands don’t hold their value as well as others.
  • Service history. If you can show that your car has been serviced regularly, it will help you get a better price for it.
  • Your car loses value as you clock up miles on the road.
  • Condition of your car. Any damage to your car will lower its value.

Financing Difficulties When Replacing Your Car.

Having a car is a necessity rather than a luxury for many people, and it’s always been a major expense. The cheapest way to buy a car is with hard cash, an increasingly unfeasible option in a cost-of-living crisis.

So, whether you’ve sold your car for cash or traded it in, you may need some kind of finance package to buy a new vehicle.

If outstanding debt and the resulting low credit score caused difficulties in selling your car for a good price, these issues can present further problems when you try to get finance for a replacement vehicle.

For instance, you may find that mainstream finance companies are reluctant to give you a car loan because they regard you as too much of a risk.

How your credit score affects your chances of getting a car loan?

Credit history data of individuals and businesses is collected by credit reference agencies (CRAs). They use this data to determine your credit score.

Many factors can contribute to a low credit score, including:

  • Late or missed repayments.
  • Little or no credit history.
  • Maxed-out credit cards,
  • Accounts in collections.

If you apply for financing, the lender will run a credit check on you, looking at your credit score and history to assess the risk of lending money to you.

Getting a car loan if you have a poor credit score may be more difficult but it’s still possible, even if you’ve already been rejected by some lenders.

The solution is provided by lenders who specialises in bad-credit car finance.

Bad-credit car loans

If you’re in the market for a new or used car, a personal loan is one of the more affordable options.

And you can find numerous loan providers who’re willing to lend money to people with a low credit score, especially if you can show that you’re now managing your finances better and can afford the monthly repayments.

While taking out any new loan will lower your credit score in the short term, it can have a positive impact on your credit rating in the long run if you make payments on time.