If you’ve ever had your car finance application declined, you may be left wondering why. If you have a low credit score, this can be one of the main factors as to why you may not qualify for finance, or it may be a surprise that you’ve been refused car finance.
However, even people with good credit can struggle to get finance and you may not know why. The guide below has been designed to look at why your car finance may be rejected and the steps to take to put yourself in a better position before you try again.
Is car finance guaranteed?
If you’re struggling to get approved for car finance, it can be disheartening to know that unfortunately car finance is never guaranteed. If you have a low credit score and are looking to increase your chances of approval with a guaranteed car finance with no credit check deal then you may be out of luck. Car finance lenders use credit checks to predict the level of risk and how likely you are to pay your loan back on time and in full. You should be wary of any companies offering guaranteed car finance as they usually set a high interest rate to help secure the deal. This means you will be paying back way more than you need to interest and it can be more cost effective to undergo a soft search credit check before car finance, even if you have a bad credit score.
Why was my car finance application rejected?
If you’ve previously been refused car finance, you may know exactly why. If you don’t, here are the top 5 most common reasons why your car finance application may have been rejected.
1. Credit score
You probably already guessed that credit score has a big impact on your ability to get approved for finance. Your credit score shows how you’ve handled credit in the past and previous missed or late payments can put lenders off. This is because you are more likely to default on their loan, based on your previous experience with credit. You may also find yourself with a low credit score due to no credit history. It can be possible to get a car on finance with no previous borrowing history but having a small amount of credit first could increase your credit score. If you have a low credit score, it can be beneficial to take some time to work on your credit before you apply for finance again. Being refused by one lender doesn’t mean you can get finance but making multiple application for finance in a short space of time can harm your credit score.
In some cases it can be as easy as the fact that your budget wouldn’t cover the cost of car finance. When you apply for finance, lenders will usually ask you to undergo an affordability check to see how much you can afford. As part of their car finance eligibility, many car finance lenders have a minimum income amount that you will need to meet before you can get approved for finance. If you are decline on affordability, it can be a good idea to either save money for a deposit to help put more money towards your finance deal or find additional work or income to prop up your application.
Car finance deals are a legal agreement which means you need to be at least 18 years old before you could get approved for finance. It’s not uncommon to get rejected for finance if you don’t meet the age requirements. There is also usually a maximum age limit too and it can be worth checking with your prospective lender first but usually this is between 65-70 years old.
4. License Type
Car finance lenders will usually ask which type of driving license you currently hold. Ideally, lenders want applicants who have a full UK driving license before they can get approved. This is because you are usually going to be the one driving the car and for which you would need a license in full. It can be possible to get approved with a Provisional license, but your chances are much higher with a full UK license and as soon as you pass your test, you can apply for car finance and don’t need to wait till your new license comes through.
5. Job status
Similar to your affordability, you may be rejected car finance if you don’t have a job or have no income. Lenders want to see how you’re going to pay back on your loan on time and with what money. Having a steady and secure job for more than 3 months can be most desirable to finance lenders as it shows stability. You will usually be asked to supply 3 months’ worth of bank statements to prove your income when you apply for finance and before you can get approved.