If you are sick of being refused car finance, you may need to reassess your current financial situation and the options available to you. However, there are a few ways in which you can increase your chances of being approved for a car loan. There are a few reasons why you may be declined for a car loan or finance, but it can also depend on the company that you are applying with.
Why have I been refused car finance?
One of the main reasons you may have been refused car finance is your credit score. Having bad credit can negatively affect your chances of being approved for a car loan. This is because lenders will look at your credit history to determine whether you are a responsible lender or not.
Having multiple missed or late payments on your credit file, a County Court Judgement, being declared bankrupt or entering into an Individual Voluntary Agreement can seriously harm your credit score. If you are applying for bad credit car finance, you should consider working on your credit score to increase your chances of being approved.
You can also be refused car finance because you have no or little credit history. Lenders will usually check your credit file to have a look at how you have managed your credit in the past, if you have no credit history then they can find it hard to predict what sort of borrower you will.
You may get declined due to insufficient credit history and can be seen as more of a risk to lenders. If you have no credit history, you could consider a credit building card to help you build up a credit history and increase your chances of being approved.
If you aren’t registered on the electoral roll in the UK, this can also affect your chances of being approved for a car loan. Even if you don’t want anything to do with voting in the UK, the electoral roll can improve your credit score. Whether you are registered on the electoral roll or not is recorded on your credit file which lenders can see. This displays your full name and address which can help lenders verify that you are who you say you are and reduce risk of any fraudulent applications.
Check Your Credit File
One of the first things you should do to increase your chances of getting approved for a car loan is to check your credit file. You can check your credit file for free using a credit referencing agency such as Experian or Equifax. When you check your credit file you should look for a few things.
Make Sure All Your Information Is Accurate
Its very important that all the information on your credit file is accurate and up to date. Even an incorrect address can harm your credit score. If you do spot any mistakes on your credit file you should contact a credit referencing agency to fix any mistakes.
Check For Any Fraudulent Activity
Fraudulent activity can harm your credit score. If you spot anything on your credit file that doesn’t make sense or looks unfamiliar then someone may have applied for credit in your name. You can also contact your credit reference agency to correct this.
Disassociate Yourself From Any Financial Links You No Longer Need
If you have taken out credit in the past with a partner, you may still be financially linked on your credit file. This can be negatively impacting your credit score if they have bad credit. If you no longer have active finance with them, its best to disassociate yourself.
How Can I Increase My Credit Score?
As mentioned, your credit score plays a massive part in your chances of being approved for car loans. Whilst there are many options for car finance with bad credit, you should increase your credit score before applying. There are a few easy ways in which you can increase your credit score.
Pay All Your Bills On Time
This is one of the most obvious ways to increase your credit score, but it can be the most beneficial. If you’ve had trouble making repayments in the past, you may think this is impossible. However, even just a few months’ worth of evidence that you can make all your payments on time and in full can start to rebuild your credit score. It also gives lenders more confidence that in you that you can be trusted to pay back your loan or finance.
Keep Your Credit Utilization Low
If you have available credit such as a credit card or store car, its best to keep your credit utilisation low. Your credit utilisation rate is how much of your available credit you use compared to how much is available. For example, if you have a credit limit of £1000 and you use £500, your credit utilization is 50%. It is recommended that you only use about 30% of the credit available to you.
Avoid Making Multiple Applications
When you check your credit file you will see the previous credit checks that have been done on your file. This is a hard search credit check. Multiple hard search credit checks within a short space of time can harm your credit score. If you are shopping around for finance or a car loan, make sure you are committing to soft search credit checks only as these are not registered on your credit file and won’t harm your score.
Consider A Car Finance Deposit
Having a deposit can increase your chances of being accepted for finance. Save up for a couple of months before you apply for finance and get a deposit together. Some car finance agreements require a deposit but if you are struggling there are many no deposit car finance options available. Having a deposit can show lenders you are in a better financial position and lower your monthly payments because you don’t need to borrow as much.
Ask Someone To Be A Guarantor
If you’ve had trouble in the past with meeting repayment deadlines, it may be hard to get a guarantor to back you up on a car finance application. However, guarantor car loans can be really beneficial, and they can help improve your credit score. A guarantor car finance deal is in your name but a nominated guarantor such as a friend or family member is a third-party applicant on the finance deal. Your guarantor is committed to meeting the repayment schedule if you fail to do so.
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