It can be hard for drivers to own their car outright nowadays. The high cost of both new and used cars is making it difficult for drivers to be able to pay with cash. Many drivers want to finance their next car but did you know not everyone who applies will be approved? Before you can proceed with your finance journey, you’ll need to get a lender to agree to borrow you the money first. If you’ve been declined a car loan due to bad credit, you may be left wondering why? Our guide below looks at the 5 steps you can take to help improve your chances of getting a car on finance.
1. Check your credit report.
Your credit score is an influential factor in your ability to get a car in finance. Car finance lenders use credit checks to assess how likely you are to pay back your prospective loan on time, based on your history of borrowing. Some lenders may even decline an application based on a low credit score. So, before you dive into the world of car finance, check your credit report. You can see where you fall on the credit scale and improve your score if it’s looking a little low. Also, make sure all your information is accurate and the most up-to-date it can be. If you need to change or question anything on your credit report, contact the credit reference agency that provided it.
2. Research car finance agreements.
Most drivers take the car first approach, rather than the finance first. This means spotting a car you like at a local dealer and applying for finance through them. However, you may not be getting the best deal, or they may only have a limited number of finance types available. Many UK dealers offer both PCP and HP finance agreements. But you can also finance a car through a personal loan too. Take some time to look at all the finance types first, as they all have a different structure and monthly payments, so you may be suited to one agreement over the others.
3. Set a budget.
You may struggle to get a car finance deal if you’re trying to borrow beyond your means. You need to be realistic when setting a car finance budget. Car finance deals can last a number of years so you need to be confident your situation won’t change, and you’ll always be able to afford the monthly fee no matter what. If you’re not sure, it is recommended you only pay around 20% of your monthly income for car finance each month. For example, if your income is £2,000 a month, your budget for a car would be around £200 a month.
4. Have a deposit ready.
Some car finance deals can ask for as much as 10% of the cost of your chosen car for a deposit so it’s best to be prepared. When you put down money as a deposit at the start of your deal, it reduces the loan amount. This is beneficial to both the lender and to you. From a lender’s perspective, the risk is reduced because you aren’t borrowing as much money. And for you, the loan is smaller so you could pay it off faster or reduce the monthly payments.
5. Apply together
You may be struggling to get approved for finance for several reasons. Whether it’s bad credit or lack of income, you may be refused a car loan on your own. A joint car finance application can be an option for couples who want to finance a car together. It can help to improve your chances of approval if you’re struggling. Both persons will be responsible for meeting the monthly repayments and from a lender’s point of view, they essentially get two opportunities for the loan to be paid, so it may work in your favour.