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Credit Search: Car Finance Jargon Busters

Curious about how lenders evaluate your car finance application? 🤔 One of the steps they do is called a “credit search.” But what exactly happens in this process and should you be worried about it? Well, you can relax because this isn’t something that should stress you out. In fact, you probably don’t have to do anything. If you’ve been a good payer on your previous loans, then that’s a good thing because lenders simply want to know more about how you handle your finances and if you were able to pay back your past loans on time. So, what do lenders see when they perform a credit search? Find out with this car finance jargon busters guide. 

Credit Score of the Car Finance Applicant

One of the first things that lenders want to know is your credit score. The score is a number that represents your credit history. The higher the score, the better your credit history. Most lenders would want car finance applicants with excellent credit scores because this means they’re most likely to pay back the loan on time and there’s minimal risk of missed payments. And they might offer you a better interest rate too.

Applicants with poor credit scores can still apply for car finance of course but it might be more difficult to find a good deal with low interest rates. If you have a sub-prime score, you may want to take some time to work on improving it first before applying for car finance. This way, you’ll have a better chance of getting approved by the lender. 

Your Financial Status Through the Credit Report

Your credit scores can already tell a lot about your financial status but lenders typically want to know more about your past loans, how committed you were at paying them back, and whether you’ve missed a few payments before. Here are some details that lenders will see by doing a credit search on your credit report. 

Loan Repayment Habits

Your credit report has a record of all your financial obligations and all the payments you’ve made. Lenders will be able to see if you made payments on time, whether you’ve paid the minimum or in full, and also if you’ve had late payments, defaults, and even county court judgments for obligations you have not taken care of. 

Amount You Currently Owe

Lenders also want to know if you have any current loans that you’re still paying off. It’s not necessarily a bad thing to apply for car finance while you’re still repaying a loan. Lenders simply want to know if it’s still going to be manageable for you to take on another financial obligation like financing a car. To be on the safe side, it’s better to pay off your current loans before taking on another one.

Current and Past Addresses

This may seem like an unimportant detail but lenders want to verify your address and know if you’ve been moving around a lot. Having one address for a good number of years shows stability in terms of your living situation and your financial status. Make sure you’ve registered on the electoral roll so that your correct current address will be recorded on your credit report. 

Any Public Records 

If you’ve defaulted on past loans and the lender has taken legal action, any court or public records like CCJs or IVAs and even bankruptcies will be stated on your credit report. Not only that, the lender doing the credit search will see what’s the status of your agreement with previous lenders where you haven’t paid the loan in full. These public records can stay on your credit report for many years so if you have a CCJ, for example, work on paying back the lender and improving your credit record. This might mean not taking out any loans until you’re more financially stable to manage the repayments. 

All Loan Applications

Whenever you apply for a loan or car financing, lenders will do what’s called a “hard credit search.” This means when they check your credit report, there will be a record that this specific lender has conducted a credit search. There’s also something called a "soft" credit search where other financial institutions won’t be able to see who has checked your credit history. For example, you can do a soft credit search on your own credit record to have an idea if your financial history is doing well or if it needs improvement. 

If you have multiple car finance applications, then this means there would be plenty of lenders doing hard credit checks on your record. They’ll see that you’ve been trying to get credit from different car finance companies. This isn’t a good thing because you’ll look like you’re desperate for credit. 

Lenders typically see this as a red flag and think you’re a high-risk borrower. Only apply for a loan when you’re already sure you’ve found the right lender and that you’re confident that your credit score and credit report are good enough to convince the car finance company to approve your application. 

Other Necessary Information

Apart from your financial status and credit history, lenders check your personal information, employment history, bank details, and also verify your identity through your driver’s licence. When you’re ready to apply for car finance, make sure that every piece of information you provide is correct and accurate. If they ask for detailed addresses of your present and past employers, make sure you provide exactly that. As much as possible, make it easy for the lender to assess your application. 

Car Finance is Fast with Carmoola!

Loans and other financial products used to be so tedious! It took a lot of time and effort to fill out application forms, wait for phone calls, and then wait some more for the result. Carmoola is changing all that by making things fast, transparent and easy for UK car buyers to finance a car!

All you have to do is download Carmoola on your smartphone or iPhone and then provide your personal details, and verify your identity using your driver’s licence. In under 60 seconds, you’ll know the result, and how much you can get for your car purchase! Be sure to read more about how Carmoola works! And for questions, reach out and we’ll be happy to talk to you! 😀

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