What do lenders look for when approving car finance?
If you’re thinking about getting car finance, it’s important to know what lenders check before making a decision about your application.
Understanding what checks are done for car finance can help boost your chances of getting approved. Here’s a simple guide to what lenders look for and some tips to follow.
What checks are done for car finance?
Lenders do a few different car finance checks to decide if they can approve your application. These checks help them understand how well you’ve managed money in the past, and if you can afford the repayments. Here’s what they’ll carry out:
Credit checks
Lenders will most likely check your credit history to see how responsible you’ve been with money previously. They want to know if you’ve kept up with payments on loans, credit cards, or other finance deals. Your credit report shows if you’ve missed payments, or have anything more serious on your file like a County Court Judgements (CCJ), or bankruptcy.
The higher your credit score, the better your chances of approval might be. But if your credit score needs work, we may be able to help. At Car Finance 247, we work with specialised lenders who offer bad credit car finance and may be able to find you a deal. They look at more than just your credit score and factor in your current income too. Just bear in mind, interest rates might be higher if you have a low credit score and credit is subject to status.
Affordability checks
Lenders will check if you can afford the monthly payments. They may look at your income and your current expenses, like rent, bills, and other debts.
They could work out your debt-to-income ratio, which is a way to see how much of your income goes towards paying off debts. If you already owe a lot, lenders might think you’re a bigger risk to lend to. To boost your chances, you could try to pay off some smaller debts before you apply.
Lenders must ensure you can afford the loan without leading to financial hardship. If you're struggling with existing debt, lenders may not approve the loan unless it’s within your budget to repay.
Employment checks
Lenders also want to know if your income is reliable. They might ask for recent payslips if you’re employed or tax returns if you’re self-employed.
Lenders might prefer it if you’ve been in the same job for a while because it shows your income is steady. Sometimes, being self-employed can make it tricky to get accepted for car finance too. They might view someone self-employed as more of a risk to lend to. At Car Finance 247, we also work with specialised lenders who could offer self-employed car finance so don’t let this deter you from applying.
ID and address checks
Lenders usually ask for a valid UK driving licence or passport as proof of ID, and they might also ask for a recent utility bill or bank statement to confirm your address. You have to be eighteen or over to apply for car finance in the UK, and you have to have lived in the UK for the last three years or more.
Vehicle checks
Lenders will also check the car’s age, mileage, condition, history and market value. They prefer newer cars with low mileage in good condition, as they’re seen as less risky. Choosing a car in good condition that hasn’t done many miles could boost your chances of approval.
Is it hard to get accepted for car finance?
This depends on your financial circumstances and credit history. Lenders must conduct thorough checks to ensure that the loan is affordable for you and doesn’t result in financial difficulties. If you have a good credit score, a stable income, and a low debt-to-income ratio, you might be more likely to be approved.
But, if you have bad credit, or have a lot of existing debt, it can be a bit trickier. In these cases, working with specialised lenders like ours could make things easier.
By sorting out your credit report, showing you can afford the payments, and getting your documents ready, you could make yourself a more attractive borrower.
Will I get accepted for car finance?
If you’ve got a steady income and a good credit score, you may be more likely to get approved for car finance. If your credit history isn’t great, it might be tougher, but it’s not impossible.
At Car Finance 247, we do a soft check, which doesn’t impact your credit score or show on your credit file. A soft credit search just lets us see your current finances and your financial history, to determine whether you might be eligible. If you aren’t eligible, you don’t need to worry about this damaging your credit score. If you choose to proceed, the lender will carry out a hard credit search, which may impact your credit score and be visible to other lenders.
How to boost your chances of passing car finance checks
If you’re worried about getting accepted for car finance, there are a few things you can do to try and boost your chances:
Check and improve your credit report: Before applying for car finance, check your credit report for mistakes and correct them. If your credit score is low, you could take steps to try and improve it first. Credit is subject to status.
Pay off small debts: Clearing smaller debts, like credit card balances or small loans, can show lenders that you’re managing your money well. It could also improve your debt-to-income ratio, which might increase your chances of approval.
Register to vote: Being on the electoral roll helps lenders verify your identity and address, which could speed up the application process (and could even boost your credit score). It also helps show stability and reliability, which lenders appreciate.
Pay a bigger deposit: Having a deposit could improve your chances of getting approved for car finance because it lowers the amount you need to borrow. It can also lead to lower monthly payments and better interest rates.
Use a guarantor: A car finance guarantor is usually a family member or friend with a good credit history who agrees to cover the payments if you can’t. This might give lenders extra security and could make them more likely to approve your application.
The takeaway
When you apply for car finance, lenders will look at your credit history, how much you can afford to pay, and the car itself. By keeping your credit score in check, making sure all your details are correct, and choosing a good car, you could increase your chances of being accepted!
It’s important to note that lenders are required to make sure that the car finance is affordable for you and that it won’t cause you financial difficulty. Always fully read the terms and conditions of any finance offer before proceeding.
Now you know what checks could be done for car finance, you can make steps to boost your chances of approval.
Get a quote now to get started.