What is open banking?

Open banking could revolutionise the way you apply for car finance. Check out our guide to this new financial innovation and find out how it could help you

Written by Verity Hogan
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What is open banking?

Open banking allows you to use the power of information you already own to leverage greater access to financial products. Your bank accounts hold a wealth of valuable information that helps paint a picture of how you manage money. In the past, this has only been accessible by your bank, but now – thanks to open banking – you can control who can view it.

Open banking vs. credit scores

It’s been argued that open banking could be the biggest change to the financial industry since credit files were introduced.

Lending decisions are typically judged on three factors: stability, ability, and willingness. Your credit score can really only indicate willingness. And even then, it’s a blunt instrument. Credit files tend to focus on negative financial choices and habits and can be up to three months out of date.

Open banking offers lenders a more nuanced view of these three main factors and can also provide valuable insights into your financial behaviour.

This means lenders can take into account your income and spending, how often you dip into your overdraft, whether you save regularly, keep up with a direct debit, cluster your bill payments around payday to help you budget more effectively, or spend in high risk areas like gambling.

How could open banking help me get car finance?

Credit files can be a catch 22. You need to have one to be able to secure credit, but you often can’t start building a file without already having credit.

This means that young drivers who have limited or no credit history, drivers who have defaulted on payments in the past but have improved their financial habits more recently, and self-employed workers with fluctuating incomes can all find it tough to get car finance.

Open banking frees you from being restricted by your credit score and can help us at CarFinance 247 to find finance options for consumers who would otherwise be refused. Lenders will be able to see a fuller picture that shows your positive and negative financial habits and trends. A process of automated checks and manual human oversight will then help determine whether you could be approved in principle.

Open banking and privacy

We get it; the idea of allowing someone to view your bank account can be daunting – and not only because it might mean revealing your serious Starbucks habit!

The good news is that privacy is our number one concern. You’ll be asked to give explicit consent and told exactly what information will be shared and how it will be used. Access can only be granted for a maximum of 90 days and it’ll only be used for the purposes of assessing your application.

Verity Hogan

* The UK's number one online car finance broker by unique users to the website. Based on Hitwise data – 1,746,657 to CarFinance 247 vs. 666,020 for nearest competitor. January to December 2019.

96% of our customers recommend us: † Based on feedback left on independent review site Reviewcentre. May 2019.

CarFinance 247 is a trading name of CarFinance 247 Limited. Registered office: Universal Square, Devonshire Street North, Manchester, M12 6JH. Registered in England. (Registration Number 06035525).

CarFinance 247 is authorised and regulated by the Financial Conduct Authority for insurance distribution and credit broking (Firm Reference Number: 653019). CarFinance 247 is registered with the ICO (Registration Number Z1897658).

Finance is subject to status and is only available to UK residents aged 18 and over. Written quotations are available on request.

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