If you’ve recently applied for car finance and been declined, it can be disheartening. Many people don’t have the cash to hand to pay for their next car purchase and are turning to loans or finance to help. Car finance allows you to spread the cost of getting a car into monthly instalments with interest till the end of an agreed term. Sounds great, right? But what happens if you can’t get approved. You may have recently been declined and are not sure why. You can ask your finance lender on what basis you couldn’t get approved for a car loan or our guide below has been designed to explore the most common reasons you may be refused car finance.
- Low credit score
One of the main reasons why you may be refused car finance is your bad credit history. When you apply for finance, lenders will usually want to check your credit report to see how you’ve handled credit in the past. Missed or late repayments, high levels of debt or no evidence of taking out credit can negatively affect your credit score. From a lenders point of view, you can be seen as higher risk to default on your car finance again and they may not want to lend to you. Getting car finance for bad credit can be possible, but you could try to increase your credit score before you start applying as it can see easier acceptances and lower interest rates offered.
- Affordability
Another reason you may not be able to get a car on finance is because you simply can’t afford it. Many lenders will require you to pass an affordability check and may have their own income criteria you have to meet before you get approved. It’s really important that lenders stick to the requirements of responsible lending practices and also that you don’t borrow more than you can afford to pay back.
- Employment status
Similarly, to affordability, it can be harder to get car finance without an income. If you’ve just started a new job or are self-employed, your workload may vary, or you may not pass your probationary period. Many lenders can require you to supply 3 months’ worth of bank statements to see how much you earn. It can be possible to get cars on finance on benefits as for many it’s a guaranteed set amount each month but having an additional income could boost your chances of approval.
- Age
Car finance is a legal agreement and failing to meet the terms of your deal can lead to more serious financial implications. Due to this, the minimum age you have to be to obtain finance is 18 years old. If you are over 18 and have been declined, it may be due to lack of credit history. There are also lenders who have a maximum age limit due to concerns around ability to make repayments. Maximum age limits can vary depending on lender, but it can range from around 70-79 years old.
- Eligibility
Each lender has their own criteria that needs to be met before you can get approved. If you’ve been declined, it might just be because you don’t meet their eligibility requirements. If you’ve been refused by one lender, it may not mean you will be rejected by them all. It’s worth shopping around first and checking the requirements of each lender before you start applying.
What to do if you’ve been declined car finance
If you’ve just been rejected for a car finance agreement, it doesn’t have to be the end of the road. There are a few steps you can take to increasing your chances of approval.
- Work on your credit score
One of our best finance tips is to sort your credit score out. There are so many benefits to having a good credit score and getting your credit in shape. A better credit score can mean higher credit limits, easier acceptances, and lower interest rates. You can start to rebuild your credit score by making all your payments on time and in full, reducing any existing debt, keeping your credit usage low and avoiding taking on any new credit in this time.
- Choose the right lender
If you have been refused car finance, it can be better to use a bad credit specialist instead of mainstream or prime lenders. There are a number of finance lenders who specialise in helping people with little or no credit and could help you get approved, even if you have just been declined with another company.
- Get a car on hire purchase
Hire purchase is a car finance agreement which is a form of secured loan. HP can be suitable for those with low credit scores as the lender can use the car as collateral. If you fail to meet your repayments, the lender has the right to take the car off you which reduce the risk. You won’t own the car until the end of the agreement and all payments have been made in full and on time.
