AD| Getting a car on finance can be a really exciting time. You can usually get a newer, better car than you could afford with cash and pay for it in monthly instalments. It’s worth remembering that car finance is never guaranteed to anyone, and there can be a number of reasons why your car finance application may be rejected. If you’ve already been refused, it can be disheartening. However, it doesn’t have to be the end of the road. It can be worth taking some time to save for a deposit and increase your credit score before you start making car finance applications again. The guide below looks at the top 5 factors that could help you get the car finance approval you need.
Why have you been refused car finance?
Most applicants will already have an idea of why they can’t get a car on finance. Whether that’s due to a bad credit score or inability to meet the repayment schedule, it’s important to know where you’re going wrong. If a lender has rejected you, you can ask the lender on what basis your application was declined, so you know what you need to do to increase the likelihood of an approval. Below are the top 5 reasons why you may be refused car finance:
1. A bad credit score
2. Don’t meet the income criteria
3. Can’t afford the repayments
4. No current employment
5. Applied with the wrong lender
How can you get approved for car finance?
If you’ve already been refused or if you’ve been declined in the past, there are a few factors that you can consider before you apply to get a car on finance again.
Increase your credit score If you’ve been declined due to bad credit, you may be looking to get a car on finance without a credit check being performed, however it can be hard to come across. Instead, you should take the time to increase your low score to help get you a better deal and also increase the likelihood of approval. Lenders tend to favour applications who have a strong history of meeting payments on time and in full, as you’re less likely to default on your car loan. You should try to pay all your current debts on time, reduce as much debt as you can, or build credit if you’ve had no previous borrowing history.
Save for a Deposit
There are many no deposit options available, which can be attractive. However, it can actually be more beneficial to have some money to put towards your car finance deal. A car finance deposit means you put money down at the start of the agreement. The deposit contribution then offsets the value of your finance, which helps to lower the loan amount and make it more affordable. From a lenders point of view, it can be a positive step and helps shows that you have good financial management and can help you secure the deal.
Get a Guarantor
If you’ve made credit mistakes in the past, it can be hard to get someone to be your guarantor. However, if you can find a friend or family member to support your applications, it can massively increase your chances of approval. Car finance with a guarantor is when someone you know agrees to pay your finance if you fail to do so. It can be beneficial as the lender then gets two chances for the loan to be paid back, which helps to reduce the risk. However, if both you and your guarantor fail to repay, it can have serious financial implications on both of your credit files and affect your ability to get credit in the future.
Choose Hire-purchase
There are a number of UK car finance agreements you can choose from, but you may have the highest chances of approval with hire-purchase. Hire-purchase is a secured loan, which means the lender buys the vehicle, and you make monthly payments that equal the car's value till the end of the agreed term. Interest is usually included within your monthly payments, and having a bad credit score can impact the interest rate you are offered. However, the lender owns the car throughout the agreement, so if you fail to repay, they have the right to take the car off you. If you make all payments on time and in full, there’s a small option to purchase fee to pay at the end, but after that the car is yours to own.
Get a Cheaper Car
If you’re getting a car on finance with bad credit, it can be a good idea to be realistic about the car you want. The more the lender loans out, the higher the risk they take, and brand-new cars may not be possible with bad credit. Instead, you could consider getting a used car on finance, as the loan amount tends to be lower. Not only could it increase your chances of approval, but it also makes your deal more manageable and can help to reduce your monthly payments.
Are you looking to get a new car? Would you consider car finance?
