Car finance is a popular way to spread the cost of owning your next car. When you take out a car finance deal, a lender agrees to loan you the money or a value that is secured against a vehicle to get the car you want. You then make monthly payments with interest to the lender until the end of the agreed term. A finance lender takes a risk when they lend out money and they need to assess the likelihood of the loan being paid back on time and in full by the customer. So how can lenders protect themselves? There are a few checks that are put in place for customers to meet before a lender can offer them finance or not. Let’s take a look at some of the most common car finance eligibility criteria and how to improve your chances of approval.
Is car finance guaranteed?
Unfortunately, car finance can never be guaranteed, and it would be unethical of lenders to promise to all applicants that they can offer them finance. If you’re searching for car finance and come across companies offering guaranteed finance, you should be wary. Companies like these could put sky high interest rates in place or charge fees for using their service which can make your car finance deal much more expensive than it needs to be.
What checks do I need to pass to get a car on finance?
There are a number of checks that lenders put in place before customers can get a finance approval. The most common checks are below but it can also be worth checking what the lender requires before you start making applications.
One of the most common ways to assess someone’s creditworthiness for car finance is by performing a credit check on their file. Your credit report shows how you’ve handled credit in the past. If you’ve missed payments, made late repayments, or have high levels of debt, you are more likely to default on future loans based on your previous behaviour. Applicants who have a good track record of handling credit responsibly are much more likely to get easier car finance acceptances as they are less of a risk to lend to. If you check your credit score and find it’s a little on the low side, it can be a good idea to work on improving your score before you start applying.
An affordability check for car finance is when lenders ask how much you earn and how much you could afford to put towards your car finance payments each month. Your budget for finance should be realistic and affordable as you will need to meet each and every monthly payment over a number of years. Lenders assess your affordability to see if you could comfortably afford a car finance deal and what your monthly payments could look like. Your affordability can then determine cars within your budget. Lenders will usually request payslips or bank statements to prove your income before they decide to offer you a car loan.
Proof of driver’s license.
Lenders will want to know which type of driving license you currently hold. You can’t get a car on finance with no license and only a small number of lenders will accept applicants with a provisional license. If you’re currently learning how to drive, it can be best to wait till you have a full UK license before you apply to have a better chance of approval. Lenders will ask for a copy of your license and also check its validity with the DVLA.
Lenders tend to favour applicants who have a good income and a full-time employment status. However it can be possible to get finance deals when you’re self-employed, revive benefits or are pat time employed too. Whatever your employment status is, you will need to prove it. If you’re employed in any way, you will be required to supply 3 months’ worth of bank statements or payslips to prove your income.
Address and address history.
When it comes to getting a car on finance, it’s really important that lenders can trace the customer and their vehicle. Lenders need to know where you live, where the car will be kept and also where you’ve lived previous to your current address. Most lenders require customers to have lived in the UK for 3+ years before they can get a car finance approval.