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 Credit files tend to focus on negative financial choices and habits and can be up to three months out of date.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.