When you are in the market for a new car, you may not have the cash to buy one outright. That is where car finance comes in. It’s a popular way for drivers to get behind the wheel of a new or used car without having to pay the full amount upfront. But when you apply for car finance, what do lenders look at?
In this article, we’ll take a closer look at the car finance application process and what lenders are looking for when deciding whether to approve your application.
The Car Finance Application Process
First things first, let’s look at the car finance application process. The application process for car finance is straightforward, and it can usually be completed online or in person. You’ll need to provide some personal information, such as your name, address, and date of birth, as well as details about the car you want to take car finance out on, such as its make, model, and registration number.
The car finance application process typically involves filling out an application and providing several supporting documents, including proof of income, bank statements, and ID verification.
Once the application is submitted, the lender will review it, perform a credit check, and decide whether to approve or decline the application. The decision is usually based on the applicant’s credit history, income, and other factors.
Once you’ve submitted your application, the finance company will carry out a credit check. They’ll use this to assess your creditworthiness and determine whether or not to approve your application. If you’re approved, the finance company will provide you with a car finance agreement outlining the terms of the loan. This will include details such as the interest rate, the length of the loan, and the monthly payments you’ll need to make. Below is a more in-depth look at the criteria.
Credit Report and Credit History
One of the most important things that car finance companies will look at is your credit report and credit history. Your credit report contains information about your credit accounts, including credit cards, loans, and mortgages, as well as any missed payments or defaults you may have had in your credit profile in the past. Anything which could indicate that you’re a high-risk borrower, such as county court judgements.
Car finance lenders will use this information to assess your creditworthiness and determine how likely you are to repay the loan. They’ll also look at your credit score, which is a number that’s based on your credit history and gives lenders an indication of your creditworthiness.
Hard credit checks and soft credit checks
The lender will check with the main credit reference agencies and in the first instance may conduct a soft credit check. Once they are satisfied that you don’t have a poor credit file, or poor credit history, they will go through a hard credit check before you are accepted for car finance.
It is important that you check your own credit report on a regular basis to ensure you are aware of your own financial history. Many times, applicants for car finance do not realise they have a poor credit rating until they begin the car finance application process.
Bank Statements and Address History
Another thing that car finance lenders will look at is your bank statements. They’ll want to see evidence of your income and outgoings to get an idea of your current financial position. This is because your bank statements can give lenders an idea of your current financial situation and how you manage your money.
Lenders will typically look at your bank statements to see your income and outgoings, including any loan repayments you may currently be making. They will also look for evidence of any missed payments, bounced cheques or overdrafts, as this can be an indication of poor financial management.
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Loan Repayments and Monthly Car Finance Payments
Car finance lenders will also look at your loan repayments and monthly car finance payments. They’ll want to see that you can afford to make the monthly payment or payments, and that they won’t cause you financial difficulty. They’ll also consider any other financial commitments you have, such as credit card repayments or personal loan repayments.
Employment History and Current Job Title
Your employment history, proof of income, and current job title are also important factors that car finance lenders will consider. They’ll want to see that you have a stable job and a regular income. They’ll also take into account how long you’ve been in your current job, and whether you’ve had any gaps in your employment history.
Lenders will typically want to see that you have been in your current job for at least three to six months, although this can vary depending on the lender. If you are self-employed, you may need to provide additional information such as your tax returns to prove your income.
Address History and Residential Status
Lenders may also look at your address history and residential status when you apply for car finance. They want to ensure that you have a stable residential history and are not likely to move around frequently, which can affect your ability to make payments.
If you’re a homeowner or have a stable rental history, this can work in your favour depending on different lenders when applying for car finance. On the other hand, if you’ve moved around frequently or have an unstable residential history, this can be a red flag for lenders.
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Driving licence and valid driver’s licence
Before approving your car finance application, lenders will also need to verify that you have a valid driver’s licence. They may ask to see your driving licence or ask for details of your driving history. Having a clean driving record can help to strengthen your car finance application, as it shows that you are a responsible driver who is less likely to be involved in accidents or incur fines.
Why you might be rejected for car finance
The lender will tell you the reason for the rejection and why they have decided not to continue with the application. Suppose your application for car finance was rejected 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 in the future.
To help with a future car finance application, keep hard searches to a minimum, and limit your credit utilisation to around 25% (this means using only some of the total credit available to you at any given time). The good news is that you can check your eligibility for car finance before making an application.
Let us help you
Contact us today on 0330 174 8540 and learn about the best car financing options to help you drive away in your next dream car. Take the first step towards getting approved for luxury car finance now.
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