If you’re looking to take out a loan for your next car, you may be worried about being accepted and how it can affect your credit score. If you know you have good credit, its less likely that you will be declined for a car loan. However, many people worry that having bad credit will mean they will be declined for car finance. The UK car finance industry is bigger than ever and many people across the UK are choosing to get their next car on some sort of finance or credit. With so many people in the UK choosing to get a loan for a car, how can you increase your chances of being approved?
Check your credit file
The first thing you should do before you apply for any sort of loan or finance is check your credit file. You can do this online for free using a reputable credit reference agency such as Equifax, Experian or Credit Karma. Checking your credit file will give you a credit score and your full borrowing history. This also gives you an indication of the information that is accessible to potential lenders. When you apply for a car loan, most lenders will check your credit score. Usually lenders will provide a soft search on your credit file which doesn’t harm your credit score and doesn’t show your full financial history. When you check your credit file, you should make sure all your information is accurate and up to date. Even having the wrong current address can harm your credit score.
Increase your credit score
Your credit score plays an important role in determining whether you will be accepted for car finance. If you’ve already checked your credit file and your score is a little on the low side, don’t panic! There are many options available for bad credit car finance. Applicants who have good credit may benefit from lower interest rates, but this doesn’t mean that bad credit applications will be offered sky high interest rates. With bad credit, you are seen as more of a risk to potential lenders as you may have had problems in the past repaying your bills on time. If you are worried about bad credit, you can increase your credit score in a few easy ways.
Save up for a deposit
It’s a common myth that you must have a deposit to put down for car finance. Usually within a Hire Purchase or Personal Contract Purchase agreement, you put down a 10% deposit for the car you want. However, there are many no deposit options available on new and used cars. If you have bad credit and are struggling to get approved for a car loan, it may be a good idea to save up for a deposit before you apply. A deposit reduces the total amount borrowed for the loan, which results in lower monthly payments. It can also strengthen your application and helps you secure your finance agreement.
Get all your documents together
When you apply for a car loan, you will more than likely be asked to provide a few documents. Having your documents in order can speed up your car finance application. Different finance companies may ask for different documents but there are a few that requested the most. You will usually be asked to provide a copy of your driving license, this is because there are different rates and lenders for provisional, full UK and European driving licenses. You will also usually be asked to provide a copy of your proof of income as lenders will want to see that you can afford to pay for car finance each month. You will usually be asked to provide a copy of your payslips or bank statements for the past 3 months. You will also normally be asked to provide proof of living address as traceability is an important part of the car loan process. You can provide your proof of address using bank or credit card statements, council tax bill or utility bills.
Only apply for loans you can afford
The thought of a new car on finance can be really exciting! However, when you are looking for cars and car loans, it’s important not to get carried away. You should only apply for the car loans you can afford. Running a car can be expensive so don’t sell yourself short each month! When applying for a car loan, you should factor in additional costs such as fuel cost, car tax, car insurance, MOT and servicing costs, breakdown cover and more. You may find it helpful to use an online car finance calculator to work out your monthly budget before you apply for car finance.
Reduce your number of loan applications
As mentioned, when applying for a car loan, potential lenders will check your credit file. A soft search doesn’t leave a mark on your credit file. However, lenders who use a hard search, access your full credit file and this is recorded on your file for future lenders to see when you applied for car finance. Multiple hard search applications in a short space of time can hinder your credit score and it can imply to potentials lenders that you are desperate for a loan.