What is the approval process for getting car finance?

At first glance, the journey from car finance application to final approval can feel like a bit of mystery. And while a little mystery can make life more exciting, it’s not ideal when it comes to our finances.
 
That’s where we can help.
 
We’ve been channelling our inner Miss Marple to unravel the car finance mystery once and for all. Join us as we break down every step of the process and explain exactly how lenders decide whether to give your application the green light or leave you with that dreaded rejection email.
 
There are no guarantees, but there are steps you can take to improve your chances of securing a loan.

How does the car finance application process work?

To understand how the application process works, it can help to break it down into two stages: pre-approval and final approval.
 
Pre-approval is the first hurdle you’ll need to overcome on the path to your ultimate goal – the ideal car finance agreement.
 
But let’s not get too far ahead of ourselves; step one is completing an online application form.
 
It’s time to get personal; you’ll need to share a few important details including:

• Your full name
• Your date of birth
• Your home address
• Your occupation
• Your average income
• The amount you’d like to borrow

All this information will be fed into an algorithm and compared against each lender’s eligibility criteria. It’ll also be used to run a soft credit check (we’ll explain this in more detail in the next section).
 
At this stage, you’ll either be rejected or receive an approval in principle. This means that, in theory, the lender will be willing to offer you a loan.
 
But it’s not locked in just yet; let’s move to stage two.
 
This is when the lender will take a closer look at your application and supporting documents. They’ll usually also run an affordability check and a hard credit check.

When it comes to paperwork, you’ll likely need to upload:  

• Proof of ID – such as passport or full UK driving licence
• Proof of address – such as a recent utility bill or Council Tax statement
• Proof of income – such as three months’ payslips or bank statements

Your finance agreement will also be linked to your new wheels, so you’ll need to share the exact car you hope to buy.
 
If all these extra checks and balances give the lender the answers they’re hoping for, your approval in principle will become an official offer of finance.
 
All that’s left to do is read over the agreement (don’t skip the small print) and sign on the dotted line.

What credit checks and affordability assessments are there?

Checks are a crucial part of the application process, for lenders and for you.
 
That’s right; they might just seem like an unnecessary roadblock, but checks are essential in making sure you don’t end up with a loan you can’t afford or that could put you in financial difficulty.
 
But what exactly are these checks and how will they impact you?
 
Credit checks are probably the ones that can cause the most anxiety during the car finance process. They give the lender an insight into how well you’ve managed your money in the past as well as whether you’ve missed payments or had a CCJ issued against you.

There are two types of credit check:

• Soft credit check – this type of check gives the lenders some information about your payment history and, while you’ll be able to see it on your report, no-one else will, and it won’t impact your credit score.
• Hard credit check – this check delves a little deeper and will be visible on your credit report for up to two years. Keep in mind that if you have too many hard credit scores on your report in a short time, it can negatively impact your credit score.

The second type of check is affordability.
 
While a newer step in the process, affordability checks have become increasingly common. They look at the amount of money you earn each month compared to the amount you need to spend on essentials like your rent or mortgage, electricity bill, and food (yes, our chocolate hobnob habit is essential). The difference between these two figures is known as your disposable income and it needs to be high enough to comfortably cover a car finance payment to pass the affordability check.

What factors influence my application?

There’s quite a range of ingredients that go into cooking up the perfect car finance deal for you.
 
Each lender has different eligibility criteria and can look at different things before making their mind up, but they’ll typically consider:

• Your personal circumstances
• Your financial situation
• Your credit score
• The car you want to buy
• The type of loan you’re looking for
• The loan amount
• The loan term

How long does it take to get a car finance decision?

The exact time it’ll take to go from submitting your application to receiving a final decision and signing your agreement can vary from lender to lender.
 
With some lenders – not to brag, but us included – it can take less than 60 seconds for you to find out whether you’ve been approved in principle (just call us Nicolas Cage).
 
The next stage can take a little longer, but it is possible to go from application to final approval in just a day or two.
 
The best way to speed it up? Bring out your inner Scout and be prepared. You can accelerate the process by having your documentation ready to go, your car picked out, and knowing roughly what your credit score looks like before you even click submit on your initial application.

How can I improve my chances of being accepted?

While we can’t guarantee you a car finance approval (sadly, our crystal ball isn’t that powerful), we can share our top tips to help you boost your chances:

Build your credit score

Your credit score isn’t the be all and end all, but that three-digit number does have a role to play in the car finance approval process. Generally speaking, the higher, the better. You can take steps to improve your credit score at any time, including registering on the electoral roll, keeping your overall credit utilisation low, making payments on time, and leaving space between hard credit checks.

Choose a cheaper car

If affordability checks are your kryptonite, consider choosing a cheaper set of wheels. A used car that’s just one or two years old could cost a whole lot less than a brand-new model. Not only will you need to borrow less (which can also increase your chances as it lowers the risk for the lender), but you’ll also likely have lower monthly repayments.

Double-check your details

When you’re rushing to get an application finished or autocorrect is overstepping its boundaries, it’s all too easy to make a mistake. It might not sound like a big deal, but even missing one character in your postcode or missing a 0 in your monthly income could lead to your application being wrongly rejected. Take your time and proofread every answer before clicking submit.

Use a car finance broker

A car finance broker works with a panel of different lenders. This means you might be able to submit one application, which will be checked against the eligibility criteria of all the lenders on their panel. You might not tick all the boxes for one of the lenders, but another might be more than willing to give you that all important approval.