If you can’t afford to pay for a car outright with cash, you may be exploring finance options to help make your purchase more affordable. Car finance can be offered on both used cars and luxury car purchases. Cars loans are a popular way for drivers to get a vehicle and pay for it over a term that suits them. However, before you can get a car on finance, you will need to meet the lenders eligibility criteria. Car loan lenders can’t give finance to everyone who applies because some people may not be able to afford to pay it back. To avoid being refused a car loan, follow our tips below on how to be eligible for car finance.
Spend time working on your credit.
When you apply for a car loan, most lenders will request you undergo a credit check first. They check your credit to get an idea of how good you are at paying back your loans. Based on your previous history of borrowing, they make assumptions about which type of borrower you will be. A bad credithistory can put car loan lenders off. If you’re struggling to get approved due to bad credit, you should take some time out to improve your credit score first. Things like making all your payments on time, reducing debt, fixing mistakes on your credit report and only using credit little and often can help to better your score.
Explore different finance options.
Many drivers aren’t aware that there are multiple ways you can finance a car or they may have only heard of the most popular agreements. In the UK, you could be offered a Personal Loan, Hire Purchase, and Personal Contract Purchase agreements, all of which have their own structure. You could be eligible for one agreement over the others so it can be worth exploring each in further detail to see which would be best for you. For example, personal loans can usually offer the best and lowestinterest rates but may only be offered to those with the best credit scores. Hire Purchase car finance can be bad credit friendly becauseit’s a secured loan and if you fail to meet the repayments, the lender has the right to take the car back.
Reduce your debt first.
Before you take on any new credit, you should assess your finances first. If you already have multiple credit accounts, you should first try to reduce some of the debt you owe before taking on new credit. Your credit score considers how much of your available credit you’re using and having high levels of debt can negatively impact your score.
Save for a deposit.
When searching around for car finance, you’ll comeacross many no deposit car finance deals, which can be great if you need a car in a hurry! Taking some time to save for a car loan deposit can be beneficial though. When you put money down at the start of your deal, it reduces the overall loan amount, making the loan smaller. A smaller loan could then be paid off faster or it can reduce your monthly payments.
Have a steady, regular income.
When you apply for a car loan, lenders like to see applicants who have a stable and steady income. It’s imperative you can meet each payment over the term, usually over several years so having a full-time job with a regular income is preferable. If you’reself-employed, there can be options available to you but if you get paid cash in hand, it is recommended your deposit any earnings into a UK bank account. Lenders will usually ask for at least 3 months’ worth of payslips or bank statements to prove your income.
Prove your identity.
You’d be surprised how many fraudulent applications for finance are made each year. To help reduce the number of fake finance deals that slip through, lenders will ask you to prove you are who you say you are. You will be required to provide your identity and supply information suchas your full name, living address, a copy of your driving licence, a utility bill in your name and, maybe even your passport, depending on the lender.
Many lenders also use the information listed on your credit report to ensure it matches what you put on your finance application. This is why it’s important your credit report is accurate and the information on there is up to date.
Find the right lender.
If you’re struggling to get approved for a car loan, you may be applying with the wrong lenders. We strongly advise you shop around for the best car finance deals on offer and find a lender who’s suited to your situation. Making multiple applications with lenders who perform a credit check on you can harm your score though. Instead, you could consider using a car finance broker to help sort your next finance deal because they can compare lenders on your behalf, helping you to get the best deal whilst protecting your credit score.
