If you're wondering about the application process for car finance, then you've come to the right place. From learning about affordability to the documents you'll need and from the approval process to the length of time it takes, we've got everything you need to know about applying for car finance. Read on below.
How should I prepare for a car loan application?
Preparing for a car loan application is vital for getting accepted. The first action requires getting your deposit together – the higher the deposit, the lower the amount you need to borrow. Other factors include checking your credit report to see your current score, understanding how much you can afford and taking your time to explore the options available to you. Also, don't be afraid to ask for finance quotes so you can compare different deals and measure interest rates up against each other.
How are car finance decisions made?
The lender essentially gathers all of your information and performs a credit check to see if you're eligible for car finance. They will ask for information about your income and expenditure, address history and payslips from your current place of employment. After performing a credit check, they'll make a decision based on the details you have provided. It's worth understanding the application process beforehand and what's required of you so you can give yourself the best chance of qualifying for car finance.
What is the approval process for getting car finance?
Your credit score plays a major role in getting approved for car finance. A high score lets lenders know that you're responsible with money and can likely make the loan repayments without any issues. It forms a major part of the approval process, as does information about your current employment, including at least three months' payslips. Once the lender has all of the required information, they will have a clearer picture of your car finances eligibility and whether they can approve your application.
What is the validation process for getting car finance?
Many car buyers prefer to get finance so they can spread the cost of the payments over a set period of time. However, in order to get car finance, you'll need to go through the validation process. This involves a credit check from the lender as well as an assessment of your financial situation and proving your ID and address. Once you have given these details to the lender, they can make a decision based on the information you've provided.
What is car finance affordability?
Car finance affordability involves the lender doing several checks to see if you can comfortably afford the car repayments. Affordability checks usually feature a credit check against your credit report, as well as finding out your monthly income and expenditure. For example, if you earn £5k per month but your outgoing is £4k per month, your affordability might not look as appealing as someone who earns less but has fewer outgoings and therefore more surplus cash.
What documents will I need for car finance?
Before you can get approved car finance and purchase your new vehicle, you'll need to provide some documents. First and foremost, you'll need to show identification, such as a passport or driving licence to prove you are who you say you are. On top of that, you'll need proof of address, employment status and history and payslips that show proof of income (or tax return if you're self-employed).
What paperwork do you need for car finance?
While the majority of car finance applications take place entirely online these days, you will still need to provide some paperwork (just in digital form) to get the green light for finance. This includes providing personal information (eg, name and address history), employment details, bank account information (so the lender can take payments), ID documents like a passport or driving licence and proof of income. The lender will also perform a credit check to see if you meet the lending requirements.
What if my car finance is approved and later declined?
There's nothing more frustrating than being accepted for car finance, only to find out the application was later declined. There are a couple of reasons why this can happen, including the dealership making multiple applications on your behalf or yo-yo financing. The latter involves the dealership letting you take the car home even though you haven't formally been accepted for financing. Therefore it's important not to take the car home until all the documents relating to your car finance are approved and signed.
Why has my application for car finance been declined?
In most cases, a car finance application is declined because your credit score wasn't high enough or you didn't meet the lender's affordability requirements. However, there can be other reasons, such as not having a valid driving licence or failing to prove your address. Regardless of the reason for the rejection, the lender will tell you why they have decided not to continue with the application. Suppose you were rejected for car finance because of a low credit score. In that case, you can build it up by having a good credit to debit ratio, registering on the electoral roll, and ensuring you don't default on any payments.
Why you might have been refused car finance
There are several reasons why you may have been refused car finance by the lender. These include having a poor credit score, which is the primary reason that most people's applications are rejected. Other factors to consider include being too young (under 18), not having a valid driver's licence and making multiple applications. If any of the above apply, then it could explain a potential rejection for car finance.
What to do if you're rejected for car finance
If you have been rejected for car finance, the first thing you should do is find out why. That way, you can face the issue head-on and try to rectify it. For example, if your rejection was because of a low credit score, then you can work to improve your credit rating. Or if it was a simple mistake on the form, you can hopefully sort the issue out without too many complications. Other reasons might include not meeting the affordability requirements, in which case you can use an online finance calculator in the future to see if you meet the criteria before applying.