The car finance industry has grown massively over the past few years. In the UK, over two thirds of cars on the UK roads are bought on some sort of credit or finance. If you have been applying and keep getting refused car finance, you may be wondering why. Don’t worry though, here are the main reasons why you may be refused for car finance.
You have a low credit score
Your credit score plays a big part in your ability to get finance. It’s not impossible to get approved for bad credit car finance, however, it can be a little harder with some lenders. There are a number of reasons why you may have bad credit which can include missed or late payments, having a county court judgement, being declared bankrupt, entering into an Individual Voluntary Arrangement, repaying the minimum on a credit card and more. Potential car finance lenders will look at your credit history to determine whether you can be trusted to pay back a loan or finance deal.
If you think you have been declined for finance due to bad credit, you should work on your credit score before applying again. Even just a few months’ worth of making your payments on time and in full can start to improve your credit score.
No credit history
Many people who have not taken out credit in the past assume they have good credit. However, having no credit could mean that you have a low credit score. Credit scores are based on your financial history and your predictions for the future, but if you haven’t taken out any sort of finance, credit or loan in the past, how can lenders determine if you will make all your future payments on time and in full?
If you are struggling to get finance due to no credit history, you may want to consider a credit building card. You can use a credit building card to make a few payments each month and then pay them back in full.
Type of driving licence
Having a full UK driving license is a requirement for most finance lenders. Many learner drivers with a provisional license want to sort their finance before they have passed their test, however only a small number of lenders in the UK accept provisional licenses. This doesn’t mean that it is impossible, but it can make it harder to get accepted. You may also struggle to get finance if you have a European licence. Many lenders who accept a European or international licence do require 2-3 years of UK address history to qualify for finance. If you don’t have a full UK license, you could consider a joint application with someone who has a full driving licence as it can improve your chances of being accepted. If you are a learner driver with a provisional, you could also consider applying for finance once you pass your test and have full license. Having a full license can increase your chances of being approved and shopping around for finance using a hard search can harm your credit score.
Many people believe that you can only get car finance when you are working full time. While it is often a requirement with many lending companies for applicants to have a full time job to get accepted, there are also options for car finance on benefits and self-employed car finance too. It may be harder to get accepted but many lending panels accept benefit income such as disability allowance, carers allowance, child tax credits and more. Self-employed car finance is also possible, but you may need to do a little planning beforehand. To make sure you can prove your affordability, you should deposit any cash in hand money into a UK bank account. This is because many car finance companies will require you to provide bank statements.
You don’t meet the car finance criteria
Many car finance lenders get hundreds of applications per day and usually categorise their applicants through certain criteria. Having certain tick boxes and criteria that needs to be met can speed up the screening process. You may have been refused car finance because you did not meet their criteria. For example, you must meet the following requirements:
- At least 18 years old
- Have lived in the UK for a minimum of 3 years
- Can prove you can afford finance
- Are not currently bankrupt