Getting a new car can be a really exciting time and with more drivers than ever choosing to finance their next vehicle your new car could be closer than you think. However, what happens when your application for car finance is declined? In some cases you may know exactly where you’ve went wrong and why you can’t get approved but for many drivers, it may come as a shock. The most common reason why you may be declined for car finance is because of your bad credit history but it can be as simple as you not meeting the lenders criteria. The guide below has been designed to look at the top factors that affect your car finance approval rates and what to do if you’ve already been refused.
1. Affordability
If you’ve been refused car finance, it can be as simple as the fact that you can’t afford a car on finance. Your car finance payments will need to be paid on time and in full each month until the end of your chosen term. Car finance agreements are usually taken over 3-5 years and it’s important that you can meet each payment as it can lead to the car being taken off you and more serious financial consequences. Each car finance lender has their own criteria that you need to meet and most of them have a minimum income amount you will need to receive before you could be considered for car finance.
2. Credit score
In many cases you may be declined car finance due to bad credit and it can be disheartening. However, people with bad credit usually know where they’ve gone wrong over the years and why their credit score is in the position that it is. From a lenders point of view, an applicant with bad credit increases the level of risk to lend to. A bad credit score is usually caused by missed or late repayments in the past and this makes an applicant more likely to default on any future loans or credit.
3. Age
If you’ve been refused car finance, it can be due to your age. Car finance is a legal agreement which means you need at be at least 18 years old before you can get a car on finance. Similarly, lenders can also set a maximum age limit that applicants can be. This can be anywhere between 60-70 years old, but it can be worth checking with your potential car finance lender first before you start making applications.
4. Employment status
When you apply for car finance, lenders want to know how you are going to pay back your finance and with what money. Applicants who have a full-time job and have been there for more than 3 months are the most desirable as they are more likely to have a steady income and employment. Many lenders will also ask you to supply proof of your income before you can get approved. If you’re self-employed, unemployed or your income varies, it can be hard for lenders to calculate the level of risk and they likelihood that you’ll be able to pay your finance back on time and in full.
5. Previous borrowing history
Just like bad credit, it can be harder to get a car on finance with no credit history. This is because the lender can’t predict what type of borrower you will be when you haven’t shown any evidence of borrowing. This can be annoying as you need to have credit to get credit, but it doesn’t have to be daunting. Building a small credit history and managing your money responsibly can be as easy as getting a mobile phone contract in your name and meeting the repayment on time and in full each month. You can even set up a direct debit, so you don’t have to worry about remembering to make the payment!
What to do after you’ve been refused car finance?
If you’ve already been refused car finance, don’t panic! This doesn’t have to be the end of the road when it comes to getting a car on finance but there are a few ways in which you can prepare your application for a finance deal in the future.
– Contact the lender
It can be a good idea to get in touch with the lender or finance broker to see on what basis you were declined for car finance. If you’re not sure, why you can’t get a car it can give you more insight and allow you to know what to do next.
– Don’t make multiple applications
Once you’ve been refused by one car finance lender it can be tempting to keep on applying until someone accepts you. However, this is not the best idea and chances are if you’ve already been declined, there is something you need to work on first. Making multiple applications for finance in a short space of time can negatively harm your credit score and lenders may think that you are desperate for credit.
– Work on your credit score
In most cases you might be refused car finance because you have a low credit score. Even if your score isn’t that bad, it can be a good idea to get your credit score in the best shape as it can see you get easier acceptances, gives you access to better terms and lower interest rates and gives you more negotiation power. You can start to rebuild your credit score by reducing any current debt you owe, making sure all current payments are made on time and in full and not taking on any new credit or opening any new accounts.
