If you’re looking to get a car on finance, you may be wondering what your chances of approval are. It can be disheartening if you’ve been declined car finance already and making multiple unsuccessful applications can harm your credit score. So, before you dive into applying with car finance lenders or arranging your car loan at a dealership, the guide below has been designed to help you. There are a number of factors that lenders look at before they decide whether to offer you a finance approval or not. Let’s take a look at some of the most common criteria and how to overcome them.
Is Guaranteed Car Finance Possible?
If you’re looking for a car finance approval that’s guaranteed, you may be out of luck. Guaranteed car finance isn’t possible and if you are applying with companies who say they can secure you a car finance deal no matter what, you should be wary. These companies tend to secure your deal with sky high interest rates which end up making your deal way more expensive than it needs to be. However, there are plenty of car finance companies and lenders who work to make finance more accessible to a range of people with different personal circumstances.
What do Lenders look at when you Apply for car Finance?
When you make an application for car finance, your prospective lender will require you to meet their criteria before you can receive a car finance approval. Each lender has their own individual requirements that you need to meet but some of the most common factors they consider can be the following:
1. Credit History.
Your credit history is really important when it comes to getting a car on finance. Lenders want to know what type of borrower you will be and the likelihood that you will pay your loan back on time. They can do this by checking your credit report and seeing if you have a history of making payments on time. Missed or late repayments in the past make you more of a risk to lend to and usually indicates a low credit score. It can be possible to get approved for poor credit car finance but it can help your financial life in a number of ways if you increase your credit score or build a credit history before you start applying.
Your ability to cover your car finance payments is essential to getting approved for a loan. You may be declined if you simply can’t afford to pay back your loan. From a lenders point of view, they also need to stick to the rules of responsible lending and make sure they aren’t lending to anyone who can’t afford to finance a car. Lenders will usually require you to pass an affordability check before you can get approved. They do this by looking at your income and expenditure and working out how much you could comfortably afford to pay each month.
3. Employment Status.
If you aren’t currently employed, it can be difficult to obtain a car finance deal as lenders can’t be assured how you will pay back your finance and with what money. A regular steady income is the most favourable and lenders will usually request you to provide bank statements to prove your income. It can be easier if you are employed but car finance for people on benefits can be possible, if you meet the income requirement, as it is a regular amount guaranteed each month.
4. Deposit Contribution.
There are some car finance agreements which require you to put down a deposit contribution, sometimes even 10% of the value of your chosen. For finance deals such as Hire Purchase putting more money don’t at the start of the deal can help to secure an approval and also makes your deal more affordable. Putting more in means you borrow less from the lender and reduces your monthly repayments. However, if you need a car in a hurry or don’t want to use your savings fund towards a car, you can get car finance with no deposit from many providers.
5. Driving License Type
When you make an application for finance, you will usually be asked which driving license type you have. A full UK driving license is preferred as you will need one to legally drive the car and your information can be verified against the details on your license. Many lenders use the DVLA website to verify your license and help prevent any fraudulent claims. It can be harder to get approved with a provisional license so it may be better waiting until you pass your driving test before you get a car of your own.